England and Wales High Court (Patents Court) Decisions

IN THE HIGH COURT OF JUSTICE

 


Mr. JUSTICE LADDIE:

Section 1: Introduction

This is the judgment in two actions which came before the court and were heard together. In the first action, which was referred to throughout as the breach of confidence action, claims are made not only of breach of confidence and procuring such breach, but also breaches of contracts, breach of fiduciary duty, infringement of copyright, infringement of design right and conspiracy. Orders are sought for wide ranging relief including injunctions and the imposition of a constructive trust over some of the defendants' assets. All these claims have been disputed in the defence and have been met not only by a counterclaim for sums said to be due from the plaintiffs under a patent licence agreement and a contract of employment but also by the commencement and prosecution of the second action in which some of the defendants in the breach of confidence action have sued one of the two plaintiffs in the latter action for infringement of patent. That in turn has lead to a counterclaim for revocation of the patent in suit and the raising of a defence under s. 64 of the Patents Act, 1977. Since the breach of confidence action was not only first in time but by far the most important and time consuming part of the trial, the expressions 'plaintiff' and 'defendant' will be used in this judgment, unless the context otherwise indicates, in accordance with the status of the party in that action.

At the heart of this hard fought and bitter litigation is the complete breakdown of the personal and working relationship between Mr. John Fruth, the chief executive officer of OSI Corporation, the second plaintiff, on the one hand and Mr. Anthony David Galley and his father, Mr. Geoffrey Harrison Galley, two of the defendants, on the other. At an early part of this judgment it will be convenient to consider the history of the development of the parties' respective businesses and the dispute between them. Unfortunately that history has been the subject of irreconcilable evidence from the parties. In setting out below my findings as to what happened in fact, I have had to consider not only a very large number of mainly contemporaneous documents but the evidence of a number of witnesses of fact, the most important of those being Mr. Fruth, Mr. Lichtwardt, the Vice President of the second plaintiff, and the Galleys. My assessment of those witnesses is addressed below.

The technology around which this dispute revolves is that of the design, manufacture and sale of soft contact lenses. It will be necessary to consider that technology in some detail when dealing with the specific allegations of breach of confidence. However it will be useful at this stage to give a general introduction to how contact lenses work and the terminology used in this art.

The general structure of the human eye is illustrated in the following diagram:

Figure. 1



The eye contains a light-sensitive surface, the retina. At the front of the eye is a normally transparent lens which focuses light on the retina. In front of the lens and protecting it is a sack of fluid and a transparent cover called the cornea. The cornea is, in turn, covered by a very thin living membrane called the conjunctiva. The amount of light entering the eye can be altered by a shutter arrangement, similar to that employed in many cameras. The shutter is made up of retractable tissue called the iris. The aperture at the centre of the iris is called the pupil. The curvature of the lens can be altered by means of muscles surrounding it. Alteration of the curvature will affect the light focusing ability of the lens. By means of the muscles, the lens is able to focus light from distant or near objects on the retina at will. Sometimes however the ability of the lens to focus light from distant or near objects is compromised. The muscles may be too weak, the lens may become stiff or the lens or eyeball itself may be distorted. In such cases the focusing defects of the eye may be compensated, at least in part, by the use of an artificial lens placed in front of the cornea.

In the case of contact lenses the artificial lens is placed on the forward surface of the eye, i.e. on the conjunctiva itself. It is kept in place, in part, by the adhesive effect of the thin layer of liquid which covers the eye. Some contact lenses are made of hard plastics material, like perspex. These can be uncomfortable to wear. Others are made of softer plastics material. The corrective ability of the contact lens depends upon its ability to 'bend' light. This is determined by its shape and the light-bending ability of the material from which it is made (this latter is referred to as the 'refractive index' of the lens material). As far as shape is concerned, there are three particularly important factors namely (1) the thickness of the lens, (2) the curvature (called the 'radius') of the surface of the lens in contact with the conjunctiva (called the 'back curve' or 'back radius') and (3) the curvature or radius of the front surface of the lens.

This case is concerned with soft contact lenses made from particular types of water absorbing polymer. The polymer is fabricated from ingredients (called monomers) which can be made to react and interlink. The process of interlinking is sometimes called 'curing'. The result of interlinking is a more or less homogeneous piece of polymer. At the molecular level it would appear as if the individual monomer molecules had stuck to each other like a congealed mass of spaghetti. In the case of many, if not all, polymers used to make soft contact lenses, the polymer has the ability to absorb large but specific quantities of water. When it is full of water it is said to be hydrated. These polymers are sometimes called hydrogels when hydrated and xerogels when dry. A hydrogel which consists of, say, 55% water is referred to as a 55% polymer. The hydrogel is soft and its water content allows oxygen to pass through it so that when it is used as a contact lens oxygen can pass through it to the conjunctiva. However the absorption of water results in the hydrogel swelling and its refractive index changing. So the shape and focusing power of the hydrated hydrogel lens will be different to the focusing power of the lens before it is made to swell.

There are a number of ways of making soft contact lenses. One consists of taking a 'button' of the dry plastics material and cutting it to a desired shape. This is sometimes called lathing. This process can be quite laborious and may result in many imperfectly made lenses. The dry lenses are then hydrated. Another process is to make the dry lens in a mould of a desired shape and size and then to hydrate it when it has cured properly. This process is called cast moulding. This case is concerned with a particular type of cast moulding process, the equipment used to operate it, the materials used in it and the contact lenses produced from it.

Contact lenses are made in a range of different strengths or 'powers'. That is to say that different lenses within a range will have different abilities to correct short or long sightedness. Rather than custom design lenses which perfectly correct each individual customer's short or long sightedness, manufacturers produce a range of lenses which differ in power from one another in small steps. The customer is prescribed the lenses within the range which most nearly correct his or her visual imperfections. The power of a lens is measured in units called dioptres. It is common for members of a range of contact lenses to differ from their immediate neighbours by a fraction, frequently 0.25, of a dioptre^[1].

Section 2: the history of the dispute

(a) The period to 1989

Mr. Fruth and the Galleys have at all material times been involved in the manufacture and sale of contact lenses and, in particular, soft contact lenses. Mr. Fruth and Mr. Geoffrey Galley met in the mid 1970's when they both were working for another company in the contact lens industry known as CooperVision. Mr. Fruth was on the sales side and Mr. Galley was on the technical side. In late 1982, while he was still working for CooperVision, Mr. Fruth formed a company which was referred to during the trial as OSI-1. It was a company which developed a novel way of selling contact lenses by telephone-marketing. Its supplier was CooperVision. Mr. Fruth says that OSI-1 had a healthy profit margin by keeping overheads and selling costs low. It should have been a successful business. In the meantime Mr. Galley, who had been the head of manufacturing for CooperVision's contact lens business, left that company to set up a new company called CV Laboratories to develop a method of making contact lenses for CooperVision by the cast moulding process. CooperVision purchased the CV Laboratories business in 1981. Following the sale of CV Laboratories, Mr. Fruth approached Mr. Galley (with whom, he said, he had established a solid personal and business relationship) and invited him to participate in OSI-1 in return for a 10% shareholding.

According to Mr. Fruth, in 1985 CooperVision was in negotiation with him to purchase OSI-1. A price was mentioned. CooperVision, in breach of its supply agreement with OSI-1, then cut off supplies and offered half the original price for OSI-1. The act of withdrawing supplies was seen by Mr. Fruth as an attempt to intimidate OSI-1 and force him to sell it at an undervalue. Litigation ensued in the US which resulted in a settlement agreement under which approximately $7,000,000 in damages was paid by CooperVision. OSI-1 had been placed into liquidation mainly as a result of CooperVision's refusal to supply lenses. Mr. Fruth established the second plaintiff in these proceedings, to which I will refer as "OSI", in early late 1985, prior to the settlement of the litigation. Mr. Galley became a shareholder in the new OSI.

OSI required a supplier of lenses because it did not manufacture lenses itself. Although OSI was obtaining lenses from two other suppliers, Mr. Fruth said that he wanted an independent source of lenses to be secured. He had learnt just how vulnerable a reseller was to having its supplies cut off by its supplier. He did not want there to be any possibility of a repetition of the type of damage which had been caused to OSI-1 by CooperVision's refusal to supply. In late 1987 there were discussions between Mr. Fruth and Mr. Geoffrey Galley and they reached an oral agreement to establish a contact lens manufacturing facility in the UK. It would supply OSI. It was intended that the new company would manufacture lenses by means of a cast moulding process, much along the lines of that operated by CooperVision, incorporating a new mould design the subject of a patent application filed by Mr. Galley. In fact another patent application relating specifically to another new type of mould was filed by Mr. Galley in late 1989 and this was the patent which was eventually the subject of the licence and the alleged patent infringement which are in issue in these proceedings.

Both Mr. Fruth and Mr. Galley envisaged that OSI would merge with the proposed new manufacturing company at some point in the future in return for OSI stock. In early March 1988 a formal agreement was entered into for the establishment of the new manufacturing company. The parties to the agreement were Mr. Fruth, Mr. Geoffrey Galley, Mr. Anthony Galley, and two other gentlemen, Mr. Morland and Mr. Bevis. Of the latter two, the former had also been employed by CooperVision as an engineer and the latter had been employed as an engineer by CV Laboratories. They also are defendants in this action. Mr. Geoffrey Galley was to be managing director and majority shareholder of the new company which was known as Precision Lens Laboratories Limited. It subsequently changed its name to Ocular Sciences Limited. It is the first plaintiff in these proceedings. In most of the documents and in most of the evidence given in the trial, this company is referred to as PLL and I shall refer to it in the same way in this judgement. A Mr. Atkinson, a highly qualified chemist and former employee of CV Laboratories, subsequently joined PLL in September 1988 and became a director of PLL. He too is a defendant. All six individuals were shareholders in PLL.

The agreement with Mr. Geoffrey Galley also provided for the joint ownership of Mr. Galley's patent application and any patents based upon it. Mr. Geoffrey Galley was to have the majority share. The other owners were Mr. Fruth, Mr. Bevis, Mr. Morland and Mr. Anthony Galley. PLL started manufacturing contact lenses for OSI in 1989 and on 1 June of that year OSI and PLL entered into a Distribution Agreement. OSI was appointed as PLL's exclusive distributor in the United States, Canada and Puerto Rico for certain contact lenses. To satisfy Mr. Fruth's concern that OSI should not be vulnerable to a cut off of supplies by PLL, the distributorship agreement contained provisions obliging PLL to supply lenses up to a stated maximum each year. The agreement also included an obligation on OSI to purchase at least a stated minimum number of lenses each year. The price charged to OSI was to be in accordance with a cost + 20% formula.

(b) 1989, the creation of Contact Lens Technologies and the Bausch & Lomb agreements

It was decided in late 1989 that Mr. Geoffrey Galley's patent should be transferred to a new company, Contact Lens Technologies ("CLT"), located in the Isle of Man, which was to be a tax efficient vehicle for receiving royalties. Shares in CLT were to be owned in the same proportions as the shares were held in PLL. CLT was incorporated in April 1990. Instructions were given by Mr. Geoffrey Galley for his patent to be assigned to CLT. There were delays in carrying out those instructions and it was not until the 13th of March 1991 that the patent was assigned to CLT.

In 1989, Mr. Geoffrey Galley, approached a large US optical company, Bausch & Lomb Inc. (B&L) with a view to them using cast moulding for their lens production. They were at the time making lenses by a more complicated and expensive method known as spin casting. They agreed to pay a substantial fee to have PLL evaluate the possibility of applying the PLL process to the manufacture of one of B&L's lenses and to have the right to obtain a licence if this could be achieved at viable production levels. In fact two agreements were eventually entered into with B&L. The first was executed on 23 February 1990 and was between PLL and Mr. Geoffrey Galley on the one hand and B&L on the other. Effectively it gave B&L the option to find out whether the technology being used by PLL could be used to manufacture its own products. The agreement recited that PLL and Mr. Geoffrey Galley (together referred to as "Precision") were owners of a body of know-how relating to the manufacture of contact lenses. B&L were licensed under that know-how and "Precision" also agreed to obtain a patent licence for B&L from CLT. The second agreement, the patent licence agreement with CLT, was executed in May 1990.

In the end B&L were not persuaded to take up the technology and pay the substantial royalties which would then have fallen due under the agreements. In October 1990 the B&L agreements were terminated.

(c) Aspect Vision Care Limited and New Focus Health Care Limited

In parallel with the developments with PLL, in late 1985 or early 1986 Mr. Galley became interested in acquiring a small contact lens laboratory. He had heard that a company called Focus Contact Lens Laboratories Limited ("FCL") was for sale. FCL manufactured hard, gas permeable and soft contact lenses by traditional lathing methods. It was based in Berkhamstead. When Mr. Galley had been at CooperVision, the managing director of the UK operations of the latter company with responsibility for marketing in the UK was a Mr. W Trevor Brooker, also now a defendant in these proceedings. In November 1985 he had resigned. Mr. Galley telephoned him with a view to him becoming involved in the new business. Together they raised funds from various venture capitalists and other investors and in September 1986 were in a position to advance their plans. They set up a new company called New Focus Health Care Limited ("New Focus"), also a defendant in these proceedings, in September 1986. Very shortly afterwards New Focus acquired FCL. Mr. Geoffrey Galley and Mr. Brooker owned one third each in New Focus with the remaining third owned by the venture capitalists. In late 1990 the venture capitalists were bought out. Mr. Geoffrey Galley at one point owned two-thirds of the shares in New Focus. He transferred one third to his son, Mr. Anthony Galley, who became a director of the company in May, 1990. He ran the financial and accounting side of the business with Laura Sanderson, the accounts manager. From that date forward, the Galleys and Mr. Brooker each owned 33.3% of the shares in New Focus.

In October 1991 FCL merged with Aspect Contact Lenses Limited and the company was renamed Aspect Vision Care Limited ("AVCL"). It is the first defendant in the breach of confidence action. Mr. Bevis joined the Board of AVCL in October 1991. Since New Focus owned 66% of the shares in FCL, and then AVCL, the Galleys' respective 33.3% shareholding in New Focus represented an interest in 22.2% of the equity of AVCL.

(d) The acquisition of PLL by OSI and the agreements in suit

As mentioned above, it was always contemplated by Mr. Fruth and Mr. Geoffrey Galley that at some time in the future OSI and PLL would merge. Negotiations to achieve that objective were prolonged. Eventually they resulted in the various agreements, the effect and alleged breaches of which are an important part of this litigation. At the commencement of the trial, Mr. Males for the plaintiffs objected to the inclusion in the defendants' witness statements of large amounts of evidence relating to the course of the negotiations and what, according to various of the defendants, was the intention behind the agreements which were eventually signed. Similar evidence was to be found in the plaintiffs' witness statements. After a short discussion of the admissibility of certain passages in the statements all the parties agreed to remove that material.

The main terms of the proposed acquisition of PLL by OSI were agreed between the parties in the middle of 1992. The terms of the merger were set out in an "Acquisition Term Sheet" dated 23 August 1992. Following signature of that, more detailed documents implementing the merger were drafted. Completion took place on 30 September 1992, on which date the following agreements were executed:-

(i) a Share Exchange Agreement ("the Exchange Agreement") between (1) OSI and (2) Mr. Anthony Galley, Mr. Geoffrey Galley, Mr. Morland, Mr. Atkinson, Mr. Bevis and Mr. Fruth, providing for the purchase by OSI of the entire issued share capital of PLL in consideration of the receipt by Mr. Anthony Galley, Mr. Geoffrey Galley, Mr. Morland, Mr. Atkinson, Mr. Bevis and Mr. Fruth of a specified number of shares in OSI;

(ii) a Patent Licence Agreement ("the PLA") between (1) PLL and (2) Mr. Anthony Galley, Mr. Geoffrey Galley, Mr. Morland, Mr. Atkinson and Mr. Bevis providing for the grant of a patent licence to PLL;

(iii) a side letter (the Side Letter) between (1) Mr. Geoffrey Galley, Mr. Anthony Galley, Mr. Bevis, Mr. Atkinson and Mr. Morland and (2) Mr. Fruth regarding the latter's share of any Licensed Patents under the Patent Licence Agreement;

(iv) a Purchase and Supply Agreement ("the PSA") between PLL and AVCL providing for the supply by PLL to AVCL of certain soft contact lenses;

(v) Consultancy Agreements between (1) PLL and Mr. Geoffrey Galley and (2) PLL and Mr. Morland, providing for their engagement as consultants to PLL.

Shortly afterwards, in late October or early November 1992, PLL/OSI entered into various employment related agreements with Mr. Anthony Galley.

Although some of the terms of some of these various agreements will have to be considered in detail later, it is convenient here to indicate the major features of them since they make it possible to understand the nature of the disputes which have arisen between the parties.

(i) The Exchange Agreement

This provided for OSI to acquire all the shares in PLL. The PLL shareholders (the Galleys, Mr. Fruth, Mr. Morland, Mr. Atkinson and Mr. Bevis) were to obtain OSI shares as consideration. They thereby became significant but minority shareholders in OSI. The agreement contained certain warranties as to the ownership by PLL of the intellectual property rights, except for the patent, used in or needed for the operation of its business.

(ii) The PLA

The Galleys, Mr. Morland, Mr. Bevis and Mr. Atkinson as owners of the Galley patent (and its foreign equivalents) granted to PLL a perpetual, irrevocable, world-wide, non-exclusive license under the United Kingdom and foreign patents on specified royalty terms. PLL had the right to sublicence AVCL under the Galley patent. This tied in with a provision in the PSA referred to below. The patent owners acknowledged that they did not have any ownership interest in any know-how or technology being used by PLL at that time (i.e. 30 September 1992) "other than to the extent covered" by the patents. They also agreed that any future know-how or technology developed by PLL and any improvements to the patents would be owned only by PLL. In addition to the right of PLL to sublicence AVCL, the patent licence agreement also expressly limited the circumstances in which the patent owners could themselves licence AVCL. In particular it provided that they could only licence AVCL themselves directly at a fair market value. Furthermore the patent owners agreed that they would not give "any assistance" to any person in the field of contact lens technology, except persons licensed to use the patents referred to under the agreements.

(iii) The Side Letter

The Side Letter provided that Mr. Fruth would receive 28.75% of any amounts received from licensing the patent to third parties, except for any royalties received from PLL under the Patent Licence Agreement. It was also agreed that any licence granted under the patent would be at fair market value.

(iv) The PSA

For the purpose of these proceedings, the PSA proved to be the most important of the agreements. It was between PLL and AVCL. Its major features were as follows:

1. It specified the mutual obligations to supply and to purchase lenses. The agreement related to so-called "covered products", that is to say certain designs of lenses which were specified in an annex to the agreement. Four products were identified in the Annex. For the purposes of this part of the judgment it is sufficient to record that three of those products were made of a polymer called "polymacon" with a 38% water content and the other one was made of a polymer called "methafilcon A" with a 55% water content.

2. The agreement provided for the minimum number of covered products which AVCL must order each month. It also specified the maximum number of covered products which PLL could be required to supply. It could supply more if it wished, but AVCL was to have no certainty of supply above the maximum figure. The latter figure was allowed to increase by not more than 10% from month to month. There were provisions relating to the supply by AVCL to PLL of forecasts for future requirements. The PSA therefore contained similar provisions for protecting the customer, AVCL, as the June 1989 PLL/OSI agreement had contained to protect OSI from a cut off of supplies.

3. Effectively AVCL was allowed to sell covered products world-wide except into OSI's exclusive territory, i.e. the Americas. AVCL was to have exclusivity in those products in the United Kingdom.

4. The price which AVCL was to pay for lenses was to be determined in accordance with a "cost + 20%" formula similar in concept to that in the June 1989 PLL/OSI agreement. The PSA stipulated a 30 day payment period. There was also a Romalpa-type clause. PLL had the right to refuse, cancel or delay shipment to AVCL if payments were overdue.

5. There were detailed confidentiality provisions, including an acknowledgement by AVCL that PLL was the sole and exclusive owner of the "confidential and proprietary information". There was, however, no definition of what fell within the scope of the latter expression. Subject to what is said below, on termination of the agreement, any material containing the confidential information was to be returned to PLL.

6. The agreement could be brought to an end on 18 months notice.

7. In addition, in the event of what was called a "Sublicence Triggering Event", AVCL was entitled to elect to receive a royalty free, non-exclusive sublicence from PLL under the Galley patent. Under the sublicence, AVCL was to be able to make the 'covered products' referred to above. The sublicence could be triggered either by AVCL being acquired by a third party (in which case the sublicence only became effective 18 months after notice of acquisition) or if PLL was unable or refused to meet AVCL's lens requirements (in which case the sublicence came into effect immediately).

(v) The consultancy agreements with Mr. Geoffrey Galley and Mr. Morland.

Under these, each of which lasted 3 years, Mr. Galley and Mr. Morland agreed to make their services available to PLL for a limited period each month (10 hours in the case of Mr. Galley, 20 hours in the case of Mr. Morland). Each agreed to keep PLL's confidential information in confidence. All intellectual property rights in future developments made by the consultant were to belong to PLL. During the consultancies, Mr. Galley and Mr. Morland were prohibited from working for or assisting any other person or entity in the area of contact lens research, development or manufacturing.

(vi) Anthony Galley's Employment contract.

Geoffrey Galley resigned as managing director of PLL in May, 1992 and Anthony Galley was appointed immediately as his successor, although his employment agreement is dated November of that year. That agreement required him to devote his energies to the furtherance of PLL's business. However he was expressly entitled to continue to serve as a director of AVCL. He agreed to abide by an employee Invention Assignment and Confidentiality Agreement. The contract included a non-compete clause which prohibited him from working for, offering services to or, generally, being associated in any way (save as a director of AVCL) with any business which competed with PLL. The latter provision lasted for the term of the employment contract with one important exception. If Mr. Anthony Galley's employment was terminated by PLL "for cause" then the non-competition clause continued in effect for a further year. However even in that event, he would be entitled to be employed by AVCL in a non-manufacturing capacity. On the other hand, if PLL terminated his employment without cause, he was entitled to certain stipulated compensation and the non-compete provisions were discharged immediately. The contract also prohibited Mr. Galley, both during his employment and for a year thereafter, from soliciting or inducing employees to leave PLL.

(vii) Anthony Galley's Invention Assignment and Confidentiality Agreement

This obliged Mr. Galley to disclose and assign to PLL all technical developments generated by him. It also expressly created an obligation of confidence and trust between Mr. Galley and PLL and obliged him to keep the company's proprietary information in strict confidence both during and after his employment. As with the PSA, there was no definition of 'proprietary information'.

With hindsight it can be seen that the network of obligations created by these agreements contained the seeds of friction. Although the Galleys, OSI and PLL were to work together for their mutual benefit and were to keep their technology to themselves, there was a significant exception. AVCL, in which the Galleys had a major interest but in which Mr. Fruth and OSI/PLL had none, was to continue as an independent company, with Mr. Anthony Galley as one of its directors, being supplied by PLL and with the possibility built into the contracts that at any time in the future it could develop its own manufacturing facility using Mr. Geoffrey Galley's patents. If AVCL became a fully independent competitor of OSI/PLL, the Galleys (and other of the defendants) would benefit but Mr. Fruth would not, save to the extent that he was entitled to a share of any patent royalties which AVCL might pay. Even that benefit for Mr. Fruth personally was watered down since subsequently he assigned his entitlement to royalties to OSI, thereby indirectly benefiting all the shareholders of the latter company. But even ignoring that, if AVCL obtained a sublicence under the PSA either because PLL had failed to supply or because AVCL had been taken over by a third party, the sublicence would be royalty free and Mr. Fruth would obtain nothing. Furthermore there was nothing in the agreements to prevent AVCL from going to other sources of supply while it was still taking lenses from PLL under the terms of the PSA or, indeed, from developing its own technology and manufacturing facility while still taking such supplies.

This latter must always have been a significant option. There is nothing in PLL's method of making lenses, save for the edge configuration produced by Mr. Geoffrey Galley's new designs of moulds which are the subject of the Galley patent (referred to throughout the trial as the "liquid edge" patent or design), which is in any way conceptually novel. Save possibly for the evidence of Mr. Fruth, the contrary was not seriously suggested. The key steps in making cast lenses adopted by PLL follows very closely those used by CooperVision. The general method of making such lenses and the type of equipment to be used, but not their detailed dimensions or operations, was the subject of advertising videos put out to the public both by CooperVision and OSI. The type of polymer used was that which was common in the art. Much of the detailed design of the PLL lenses were published in OSI advertising literature. With the benefit of a licence under the Galley patent, it would have been quite easy for AVCL or anyone else interested in entering this market to design and operate a PLL-type of line to produce PLL-type lenses.

Furthermore, if a third party were to purchase AVCL, not only did AVCL obtain a free sublicence under the Galley patent to enable it to make the covered products for itself, but in the 18 months before that licence took effect, PLL would have to continue to supply AVCL with covered products, thereby ensuring the health of the company which was to become a direct and independent competitor of it and OSI.

Finally it should be noted that the provisions in the PSA which placed a cap on the number of lenses which PLL was obliged to supply to AVCL meant that if AVCL's business began to expand rapidly, its growth could be stunted by a refusal of PLL to supply - a situation which, if insisted on by PLL, might well have forced AVCL into setting up its own manufacturing facility.

In the end AVCL did set up its own plant and is making and selling soft contact lenses which, to the user, are indistinguishable from those which were originally manufactured by PLL. It is not in dispute that in setting up its plant AVCL has used information and documents, including drawings of production equipment, which came from or were used by PLL. PLL says that AVCL has used more of its technology than it has admitted. It is not in dispute that AVCL is still using certain software which was written, at least primarily, for PLL. It is also not in dispute that PLL terminated supplies to AVCL and that AVCL owes PLL money in respect of stock which has been used by AVCL but not paid for and that PLL owes AVCL in respect of royalties due under the PLA. Which, if any, of these activities amounted to a breach of the plaintiffs' or the defendants' rights is in issue in these proceedings. But in addition, the plaintiffs say that it is now apparent that the defendants never intended to live within the PSA^[2]. It is said that in or immediately after September 1992 they entered into a conspiracy to set up a competing line in secrecy. They knew very well that what they were doing was a breach of PLL's rights. These claims are important to the plaintiffs' case. The plaintiffs say that if, as they assert, there has been a breach of confidence, the court should not hold back but should give the plaintiffs the full range of equitable relief, including injunctions or the imposition of a constructive trust over the AVCL's plant and business. The bona fides of the defendants was therefore a major issue and accounted for a significant part of the cross-examination on either side. For their part, the defendants say that it was not they who acted improperly but that they simply took legitimate defensive measures designed to thwart Mr. Fruth's clearly-signalled intent to destroy AVCL and that, to the extent that bona fides are to be taken into account and if they are held to have breached any of the plaintiffs' rights, no equitable relief should be granted against them. Therefore, before considering the events post-September, 1992, it is convenient to turn to my assessment of the four major witnesses of fact. Counsel on behalf of the plaintiffs challenged the honesty of the Galleys, and other of the witnesses called by the defence, in relation to numerous issues. Similarly Counsel for the defendants challenged the honesty of Mr. Fruth and Mr. Lichtwardt.

(e) The main witnesses

Mr. Fruth is the Chief Executive officer of OSI. Prior to his employment with OSI, he worked as Vice President of Strategic Planning & Acquisitions with CooperVision Inc. He said that his academic background is of a general nature but that he has acquired considerable knowledge in both the business and technology side of the contact lens industry through his involvement in it over the past 28 years. Mr. Fruth was in the witness box for a week. That is a long time but was fully justified by the need for Mr. Pumfrey on behalf of the Defendants to challenge at least the major parts of the very substantial evidence he had given on most of the key issues in the case. Much of his evidence amounted to a damning condemnation of the actions and inactions of the defendants or an explanation of how he and OSI had behaved toward the defendants in an entirely proper manner. He also gave extensive evidence of the sophistication, novelty, value and confidentiality of the technology in suit. However, having observed him in the witness box and considered very carefully what he said, the evidence of other witnesses and the documents put to him during cross examination, I have come to the conclusion that Mr. Fruth was a totally unreliable witness. He was not concerned to tell the truth save where he calculated that it might serve his purposes. He gave false answer after false answer with an air of controlled and calm self confidence. Even when faced with documents or facts which rendered his evidence untenable, he almost always maintained his position without flinching. This was not the evidence of a man with a poor memory but a quite cynical and determined exercise designed to mislead the court. I have come to the conclusion that there is no topic on which it would be safe to rely on his evidence when it supports the plaintiffs' case unless it is corroborated by independent unimpeachable material. Mr. Fruth showed himself to be ruthless in his pursuit of the defendants. I must add that I accept without hesitation the evidence of Mr. Cheater that he was threatened by Mr. Fruth with physical and demeaning violence if he were to join the Galley camp. Mr. Fruth at first denied that any threats were made at all. Eventually Mr. Pumfrey got him to admit that the threatening words and gestures as alleged by Mr. Cheater were made but Mr. Fruth then appeared to suggest that it was meant as light hearted banter. It was nothing of the sort. It was meant to intimidate and I believe Mr. Cheater when he says that he was frightened.

Mr. Lichtwardt is now Vice President and Chief Financial Officer of OSI. Over the course of 15 years post-graduate work experience he has held positions in cost accounting, general accounting, financial planning and treasury. He has been a Controller or a Vice President of Finance for 12 of those 15 years within the context of multinational, manufacturing companies mostly in healthcare products. He has a Masters degree in Business Administration and is a certified Management Accountant. In 1989, he joined Allergan, Inc. as Controller for the Optical Division which included responsibility for all accounting and planning matters related to the Hydron contact lens business. In 1991 he moved to another division of Allergan which dealt with medical ophthalmic devices. In April 1993 he was appointed to his current post in OSI.

Mr. Lichtwardt was at the heart of the commercial discussions and manoeuvres which led to and followed from the breakdown in the relationship between the parties in April 1994. He gave extensive evidence in relation to those events. Having listened carefully to Mr. Lichtwardt in the witness box and having considered his written evidence and the documents in the case, I have come to the clear conclusion that he was no more truthful than Mr. Fruth. He appeared to me to be a clever but quite ruthless man. He had no scruples about telling untruths under oath. As with Mr. Fruth, I am not prepared to accept any evidence given by Mr. Lichtwardt supporting the plaintiffs' case unless it is corroborated by unimpeachable evidence from another source.

Mr. Geoffrey Galley is clearly a clever man and an able entrepreneur. He is strongly motivated by a desire to acquire personal wealth. He holds the degree of Bachelor of Science in applied physics and Master of Science from the University of Manchester. He has worked in the contact lens industry for a period of 24 years having first became involved in 1971. A description of his abilities was written by a Mr. Kunst on behalf of OSI-1 in 1988. In it Mr. Kunst wrote:

"[Mr. Galley] has extensive manufacturing experience and is considered by many in the industry to be the leading authority on the manufacture of contact lenses by both cast molding and lathing processes. Galley developed CooperVision's sophisticated and cost efficient manufacturing facilities, as well as, building his own manufacturing company utilizing the cast molding process, which was later sold to CooperVision."^[3]

Mr. Fruth accepted that Geoffrey Galley is a leading authority in this area of technology^[4].

Mr. Galley holds strong views which he is reluctant to abandon or modify and which he is prepared to express in forceful terms. He tended to be impatient and he appeared to have a short temper. He saw the world and recalled events in black and white with few shades of grey. He was subjected to lengthy and determined cross-examination. On a number of issues I was not happy that his recollection was a balanced account of what had happened. In large part this lack of balance appeared to stem from his burning dislike for Mr. Fruth and Mr. Lichtwardt and, in particular, the way that they had treated his son. There were some topics on which I was not convinced by Mr. Galley's evidence but, in the end my impression was that, in relation to most issues, his evidence was substantially accurate.

Mr. Anthony Galley is still a young man. He holds the degrees of Bachelor of Science with Honours in Computer Science from the University of Exeter and Master of Science in Computation from the University of Oxford. He has been associated with the contact lens industry from about 1979 when, at the age of 14, he developed a lens design program for his father, who was at that time the Managing Director of Global Vision (UK) Ltd ("GVUK"), a wholly owned subsidiary of CooperVision. Shortly after this, he began working on a stock control program for GVUK. He then undertook further computing tasks for CV Laboratories Ltd ("CVL") which had been established by his father in 1980 and sold to CooperVision in November 1981. These applications included various lens design programs and programs for calculating the dimensions of steel inserts (a technical matter to be addressed hereafter). He developed a program for steel inserts in conjunction with David Stern, a Consultant to CVL at the time. He also prepared lens design programs for CVL. At CooperVision he wrote a database which was used for production planning and invoicing and stock control software for their distribution centre. He also wrote for CVL a purchase order management program which won second prize in a national software competition run by Barclays Bank in 1982. For his school, Portsmouth Grammar, he wrote a form list database which was used by the school to compile form lists for publication.

He was appointed managing director of PLL in 1992 at the age of 27. This was not an exercise in nepotism. He was appointed at the suggestion of Mr. Fruth and was covered by key-person insurance in the sum of £2m. I have no doubt that the appointment was made because Mr. Fruth realised just how able Anthony Galley was. He had first started working for OSI/PLL when he was still a teenager. He would be collected straight from school and taken to the company premises where he wrote the software which helped run the commercial side of the business. His ability and willingness to work extraordinary hours was never seriously challenged. His abilities were not, however, restricted to writing software. He made major contributions to the development of PLL and OSI over the years in many areas. His value was such that he frequently flew from England to OSI's premises in the United States and Puerto Rico where he would work for OSI. Mr. Fruth said that at the time when the relationship between AVCL and OSI/PLL was coming to an end and he was intent on removing Anthony Galley as managing director of PLL, He contemplated giving Anthony Galley a senior executive position in OSI in the United States. On this topic I think Mr. Fruth was telling the truth. I think that Mr. Fruth appreciated just how valuable and conscientious Mr. Galley was. I am sure that he did not wish to lose him although, in the end, Mr. Fruth's objectives in relation to AVCL made any such future employment of Mr. Anthony Galley impossible.

Mr. Anthony Galley was involved in the development of the business at the heart of this dispute in a number of ways. He was managing director of PLL, he was the Vice President of Manufacturing at OSI, he was a major shareholder and office holder in AVCL and he was one of the patent owners from whom PLL, and subsequently AVCL, obtained their respective patent licences. He was subjected to a very detailed and lengthy cross-examination. A large number of documents were put to him, including throw-away lines in private correspondence between him and his brother. His honesty was challenged on many issues and frequently. I took full advantage of the opportunity to consider not only his demeanour in the witness box but also whether his version of events was borne out by, consistent with or in conflict with the contemporaneous documents and the evidence of other witnesses. He was an impressive witness. No doubt on some issues he looked back on the history from the perspective of someone who was deeply involved and would be adversely affected by the plaintiffs' success in this action. It would not have been human for him to have done otherwise. I have borne that in mind. However it was apparent that throughout his testimony his approach was to attempt to recall as accurately as he could the sequence of events around which this case revolves, even when that might prove painful to him. For better or for worse, I think he wanted the full story to come out at the trial. The plaintiffs suggest that he 'came clean' on some issues simply because the documents made it necessary for him to do so. I do not think that is a fair assessment. Mr. Anthony Galley was fully aware that cross-examination was designed to winkle out the truth. To that extent it was one of the factors which encouraged him to tell the truth. But I do not accept the implicit suggestion that in areas where there were no contradictory documents he felt free to, and did in fact, lie. Unless expressly stated to the contrary in this judgment, I accept his evidence. In particular where in relation to conversations and meetings with Mr. Fruth and Mr. Lichtwardt, his evidence is in conflict with theirs I have no hesitation in accepting his version of events.

In coming to the conclusions that I have about the reliability of the evidence of the Galley's, I have had very much in mind the strong attack made in the plaintiffs' closing submissions, particularly in relation to the defendants' evidence and conduct in and relating to the plaintiffs' unsuccessful application for interlocutory relief. The plaintiffs assert that the defendants mislead Sir Peter Pain who heard that application by denying falsely that they had in their possession and, in some cases, had used some of the plaintiffs' documents and materials. In some cases there was not so much a denial as a failure to make full and frank admissions. This criticism was levelled equally at both Galleys. To some extent they were made out. I have no doubt that not all proper admissions were made and that a full picture of what the defendants had been doing for the purpose of setting up AVCL's manufacturing facility and starting production was not given to Sir Peter. For example at one stage in Anthony Galley's cross-examination it was put to him that he had failed to disclose a piece of relevant information in his affidavit used to resist the plaintiffs' application before Sir Peter Pain for interlocutory relief. He admitted that that was so. It was put to him that he did that deliberately so as to reduce the prospect of interlocutory relief being granted. He admitted that to have been the case^[5]. He clearly was not happy that he had done that. He explained why he had been selective in his disclosure to the judge. Similar attacks were made relating to the late disclosure in the period leading up to the trial of other material which the plaintiffs considered helpful to their case and which the defendants were obliged to disclose. Similarly, in the end, after some pressing and with considerable reluctance, Mr. Geoffrey Galley was forced to accept that some of his earlier evidence was not full and frank.

This is a serious matter and made me particularly receptive to the arguments against accepting the Galleys' evidence. I have no doubt that the Galleys were certain at the time that the plaintiffs' interlocutory application was being used as part of a determined effort to destroy AVCL and with it the livelihoods of its employees. At that time Mr. Fruth was asserting that everything the plaintiffs had was confidential (a position essentially maintained by the plaintiffs until after the close of evidence) and that the Galleys had behaved improperly. The Galleys' believed, and still believe, that the plaintiffs' claims were, in whole or in large part, extravagant and unjustified. I have no doubt that they were fearful that the court might be swept along by the wide ranging allegations made by the plaintiffs. In particular I have no doubt that they feared that the court at the interlocutory stage might, on affidavit evidence and without the benefit of the full analysis and cross examination available at the trial, accept what they saw as the plaintiffs' misleading claims and grant an injunction which would have brought AVCL to its knees. They believed and continue to believe that they were and are in extreme danger. In fact there does not appear to be much dispute between the parties on this point. As the plaintiffs put it in their closing submissions, the course adopted by the defendants was "essential to the survival of AVCL"^[6] and that had they adopted any other course AVCL "would have gone out of business"^[7]. An injunction at the interlocutory stage would have had that result. The proven defects in the defendants' evidence at that stage and the reluctance to volunteer material which might cast the defendants in a bad light was the result.

The court cannot condone any attempt made to mislead it. In my view it is clear that neither the plaintiffs nor the defendants presented Sir Peter Pain with a full and balanced account of the technical and commercial issues. I have no doubt that the Galley's reasonably believed that Mr. Fruth was determined to destroy their business by any means, whether legitimate or not. Indeed, as will be explained in greater detail hereafter, that belief was not only a reasonable one to hold, it was also accurate. What happened at the interlocutory stages made it clear that the major witnesses were capable of misleading the court. That has been one of the reasons why I have thought it right to consider and re-consider the oral testimony and the documents. One of my tasks is to assess the truthfulness of the evidence given before me. The result of that assessment, at least in relation to these four witnesses, is set out above. I can now return to the history of the relationship between the parties.

(f) Mr. Anthony Galley's position in relation to AVCL

I have already referred to the seeds of friction which were sown by the various 1992 agreements. There is one other matter which I should deal with at this stage. One of the features of Anthony Galley's employment contract was that it allowed him to continue to be a director of AVCL. The plaintiffs have asserted that there was a major conflict between Mr. Galley's duties as managing director of PLL and as a shareholder in and a director of AVCL. This conflict, so the plaintiffs say, was persistently resolved by Mr. Galley in AVCL's favour. This accusation was one of the grounds used by the plaintiffs to justify their peremptory dismissal of Mr. Galley from his managing directorship in April, 1994. It also was the basis of some of the claims made by the plaintiffs during the trial. Mr. Fruth's position was that he and OSI never knew that Anthony Galley was a major shareholder in AVCL, that he helped AVCL or that he spent significant periods of time at AVCL. Mr. Galley disputed all of this and said that it was well known that some activities for PLL, such as certain accounting procedures, were carried out at AVCL for the purpose of saving expenses for both companies. He steadfastly claimed that he did not resolve any conflicts of interest in AVCL's favour. He said that he served PLL dutifully until ousted on specious grounds by OSI. There was much cross-examination on this issue. Mr. Fruth stuck to his story of ignorance. Similarly Mr. Lichtwardt, like Mr. Fruth, was anxious to portray Mr. Anthony Galley as a man with divided loyalties. He said that he became aware of this potential problem as soon as he met Mr. Galley. In almost the first piece of evidence he gave in his witness statement he said:

"In April 1993 I was appointed Vice President, Finance and Chief Financial Officer of OSI. Shortly after my arrival at the company I met the Third Defendant, Anthony Galley (ADG), who was Vice President of Manufacturing for OSI. In the course of that conversation in April 1993, without any prompting from me, ADG outlined the close nature of the relationship between Aspect Vision Care Limited (AVCL) and PLL. In particular, he informed me that the PLL Financial Controller in the UK was also the Financial Controller of AVCL, and that he (ADG) served from time to time as the Finance Director of AVCL. ADG went so far as to say that he hoped I would not draw the conclusion that there was any conflict of interest. He indicated that he did not think that John Fruth (Mr. Fruth), the Chief Executive Officer of OSI, was aware of the close nature of the relationship between AVCL and PLL or the fact that they shared a Financial Controller but that he planned to discuss this with Mr. Fruth once I was comfortable with the relationship. He invited me to travel to the UK as soon as possible."

This dovetailed with Mr. Fruth's evidence that he did not know of Mr. Anthony Galley's close involvement with AVCL. I have no doubt that Mr. Lichtwardt was accurate when he said that, without prompting, Mr. Galley outlined the close nature of the relationship between AVCL and PLL, that the PLL Financial Controller in the UK was also the Financial Controller of AVCL and that he served from time to time as the Finance Director of AVCL. However I reject as completely untrue the suggestions that Mr. Galley raised the issue of a conflict of interest and that he said that he thought Mr. Fruth did not know but would be told at some time in the future. Even on Mr. Lichtwardt's evidence Mr. Galley thought that he could make Mr. Lichtwardt 'comfortable' with the closeness of the relationship with AVCL. He clearly did not think there was anything to hide otherwise he would not have volunteered the information to Mr. Lichtwardt on the very first occasion they met. Why, in those circumstances, Mr. Galley would have felt any reluctance to discuss it with Mr. Fruth, a person with whom he had for many years been in a close working relationship, was given no rational explanation. The closeness of the relationship with AVCL was not something which could have been hidden even had Anthony Galley wished so to do. Furthermore the suggestion that Mr. Galley wanted to keep this information away from Mr. Fruth, the CEO of OSI, but was prepared to disclose it all to the new Vice President of OSI who he did not know is, in my view, unlikely in the extreme. I have no doubt that this, like many other similar passages in the plaintiffs' evidence, was an invention designed to blacken Mr. Anthony Galley in the eyes of the court and to give support to the allegations of conflict of interest which the plaintiffs used to justify their sacking of Mr. Galley for cause. The truth is Mr. Fruth and OSI had always known of Mr. Anthony Galley's financial interest in AVCL and the closeness of the relationship between PLL and AVCL.

There is nothing particularly surprising about this. At the time that Mr. Fruth and OSI were interesting in taking over PLL they knew that the Galleys had a substantial interest in both PLL and AVCL and that those two companies had worked closely together both because of their manufacturer/supplier relationship but also because of their common shareholders. Mr. Fruth only wanted to acquire PLL. It was never suggested that he expected the Galleys to dispose of their interest in AVCL. The special safeguards given to AVCL in the 1992 agreements, particularly in relation to future rights to set up its own plant, was a reflection of the interest that a number of the personal defendants, including Anthony Galley, had in that company. OSI were always aware of that.

(g) The period from 30 September 1992 to June 1993

After PLL had been turned into a subsidiary of OSI, it continued to supply cast lenses to both OSI and AVCL. The market for contact lenses continued to expand and sales increased. All contact lenses have to be removed from contact with the eye at regular intervals. While in the eye the lenses pick up various deposits. When not being worn, the lenses need to be cleaned and put in a sterilisation fluid. Lenses subject to this regular cleaning regime can be used for months before replacement. In the late 1980's and early 1990s the concept of disposable lenses began to attract attention in the trade. If a customer could be persuaded to throw away the contact lens after it had been worn once or a limited number of times, there would be less requirement for cleaning and sterilisation and, of course, the volume of lenses sold would expand enormously. Whereas with the standard contact lens regime a customer might need to purchase 1 or 2 pairs of lenses a year, if daily disposables were used, he would need about 730 lenses a year. Monthly disposables would result in the customer needing 24 lenses a year.

Both AVCL and OSI were interested in the disposable concept^[8]. There was no dispute between the parties that any lens which was saleable as a normal soft lens could be sold as a disposable if the customer could be persuaded of the advantages of throwing away the lenses after a short period. In other words selling lenses as a disposable was primarily a matter of marketing. As Mr. Fruth said;

"A. As I stated earlier, a disposable lens can be any lens. ... You can put the covered product in a blister pack and still sell it as a disposable.

Q. It is a marketing matter rather than a technical matter.

A. Precisely."^[9]

However a successful disposable program would put up turnover considerably. It appears that at the very beginning of 1993 PLL made some experimental 55% water content lenses for trial by AVCL for possible sale as disposables. In the case of the 55% disposables eventually made by PLL and marketed by AVCL, lenses at one end of the range of powers were identical to the normal, non-disposable lenses. On the other hand the rest of the range was made with lenses of a somewhat different design. Also at the beginning of 1993 PLL began designing a 38% water content lens for possible use as disposables. Mr. Anthony Galley's evidence was that he informed Mr. Fruth that both of these products were to be supplied to AVCL as part of their covered product entitlement under the PSA. Mr. Fruth denies that he knew anything about the new design 55% disposable. As far as the 38% disposable is concerned, he accepted that he was told over the telephone in February of 1993 that it was to be supplied by PLL to AVCL but he says that he expressly "counselled [Anthony Galley] not to include the 38% disposable as a covered product"^[10]. Where the truth lies in relation to this issue is a matter to which I will return later. In any event it is clear that as early as January, 1993 Anthony Galley was discussing with AVCL a launch date of 1st June of that year for both the 38% and 55% disposables^[11] and AVCL proceeded to work towards a summer launch.

In the first quarter of 1993, OSI and AVCL continued to sell in their respective exclusive markets, the United States and the United Kingdom. In other markets where there was no exclusivity in covered products, the two companies sometimes came into competition, although OSI's non-US market was very small indeed. OSI had no presence in the United Kingdom.

The beginning of the dispute between the parties can be traced to late April, 1993. Mr. Brooker was introduced by a Mr. Grassi, the managing director of AVCL's Italian subsidiary, to another Italian company, Galileo Industrie Ottiche Spa ("Galileo"). He signed a 5 year contract with that company for the supply of a large number of contact lenses. He realised that high volume sales might cause problems as a result of the potentially limited supply available from PLL under the PSA and resolved that this issue should be discussed with PLL^[12]. Arrangements were made for the president of Galileo to visit the United Kingdom in May to be introduced, inter alia, to Geoffrey Galley. Geoffrey Galley immediately realised that the supply cap in the PSA could cause problems. There were two obvious routes round this. One was to alter the PSA so as to increase guaranteed supplies to AVCL. The other was for AVCL to consider setting up its own manufacturing plant, perhaps in association with Galileo. This was something which he needed to discuss with his son. On or about 27 April, he wrote to Anthony Galley setting out as he saw it the pros and cons of developing a manufacturing association with Galileo. In that letter^[13], Geoffrey Galley set out clearly the reasons for his view that an association with Galileo made sense both to AVCL and to the Galleys personally. He said:

"The effort to benefit ratio of future returns is much better than it has been in the past. This is because the existing technology upon which development work has been done represents a significant improvement on the obsolete technology in the hands of other players. It would hence not take a great deal of effort to implement existing technology in a separate enterprise particularly if that enterprise had existing support facilities."

Under cross-examination, Geoffrey Galley said that in this passage the obsolete technology being referred to includes the basic cast moulding process as operated by CooperVision^[14]. The development work related to the liquid edge design. The letter went on to say that Geoffrey would let his son decide whether the suggested course should be adopted.

Anthony Galley's response to this proposal is of importance. The plaintiffs' position was that from September 1992 onwards, the defendants and, in particular, Anthony were plotting to breach their obligations to OSI. For example the following was said by Mr. Fruth during cross-examination:

"Q. You gave an impassioned plea to my Lord just now as you said the ink was hardly dry on the agreement when it became clear, for example from this document, that the defendant never intended to live within the purchase and supply agreement. I believe those were your words more or less; is that right. Did you say that?

A. I do not know exactly what I said, but that is the intention of what I said."^[15]

It was said on numerous occasions that Anthony subordinated his duty to PLL to his personal interests in AVCL. In fact the reaction of Anthony is made clear by another letter written by his father only two or three days later which complains that Anthony was "unbelievably hostile" to the Galileo proposition^[16]. Geoffrey Galley did not let the matter lie there. On 7 June he wrote another letter to his son^[17]. Once again it said that the father would defer to the decision of the son. It sets out the pros and cons of AVCL co-operating in a manufacturing project with Galileo and comes down on the side of co-operation. It explains why, in his view, an independent and royalty-paying new plant would also benefit OSI.

There are two paragraphs in this letter which deserve special mention. In the first Geoffrey Galley said:

"With respect to the establishment of a new plant, you know I am prepared to undertake that project myself. I do not expect to have to do very much as the exercise would be largely one of sourcing equipment for which drawings exist..."

The existing drawings referred to here were microfilms of PLL drawings prepared for record purposes at PLL, a copy set of which had been retained by Geoffrey Galley by permission of the board of PLL. No criticism was made of his having those microfilms, but strong objection was levelled at his use of them. I have no doubt that at the time of writing this letter Geoffrey Galley honestly believed that he was entitled to use the drawings. Those drawings were subsequently used by AVCL. Whatever Geoffrey Galley's beliefs, if in using the drawings AVCL and the other defendants breached a subsisting obligation of confidence to PLL, they must be liable.

The second paragraph is in the following terms:

"On the negative side I put any extra work load for yourself and the problems which could ensue in your relationship with John Fruth. I have already dealt with the issue of workload as I see it. Only you can decide whether any pressure that might be placed upon you would be reasonable and whether it would be worth your while to proceed with a course of action which might invite opposition from John."

It is clear that Geoffrey Galley thought that John Fruth would not be happy with the prospect of a fully independent AVCL. However it was also clear that this was not because he thought that putting up an AVCL manufacturing facility was wrong - indeed for the reasons I have set out above, the creation of such a facility was contemplated in the 1992 agreements. Mr. Galley simply expected Mr. Fruth to object to the development of any company in which he did not have a major stake and which might be perceived as a competitor to OSI or PLL. It is also apparent from this paragraph and the rest of the letter that, at least at this stage, there was no suggestion that the development of an alternative AVCL plant should be kept as a secret from Mr. Fruth.

Anthony Galley's reply is recorded in his own letter of 14 June^[18]. It repays reading in its entirety. What comes out of it is that Anthony Galley was not interested in the Galileo proposal at that time because it would be a burden on him and he considered that his primary duties and efforts should be spent on PLL's activities. He states that, in the long term, he would be interested in running the whole OSI business. He told his father that he enjoyed his position in PLL and was proud of its development. In my view these letters between father and son, written before any question of a conflict with the plaintiffs had arisen, accurately reflect the interests and perceptions of both Galleys. Once again Anthony Galley did not think that anything his father was proposing was wrongful but his dedication to the interests of PLL came first. In this respect these letters confirm the impression which I got of Mr. Anthony Galley in the witness box. Throughout the growing dispute with OSI he displayed a dogged determination to do what he thought was in the best interests of PLL. His shock and distress at being removed peremptorily from his position in PLL a year later was apparent.

It appears that Anthony's letter to his father was followed up the same evening with a long conversation between them. The contents of the letter and the conversation were reported by Geoffrey Galley by letter^[19] to Trevor Brooker the next day. In it he said:

"[Anthony] points out that PLL has so far continued to meet the demands of Aspect and that they have every intention of continuing to do so in spite of the fact that Aspect is technically limited to a monthly increment of 10% which we could soon be exceeding if the frequent replacement business takes off. He feels that raising the issue of independent manufacture at this moment might invite close scrutiny of this provision of our contract with PLL/OSI and thus act against our short term interests."

The first part of this paragraph refers to the fact that under the PSA the month-on-month increase in supplies which AVCL could insist on was limited to 10%. I accept that in his discussions with his father, Anthony Galley backed up his resistance to the Galileo proposal by pointing out that if Mr. Fruth became annoyed he might insist on PLL only supplying the minimum they were obliged to under the PSA. The reference to acting "against our short term interests" was Geoffrey Galley's assessment of the effect of such a move by Mr. Fruth. I do not accept Mr. Males' suggestion that this was an indication that it was Anthony Galley who considered this to be against his short term interests as a shareholder in AVCL. It was his father's assessment, not his.

The letter goes on to suggest that Mr. Galley and Mr. Brooker should initiate discussions with OSI

"offering to trade the postponement of constructing our plant immediately for a removal of the straitjacket which the present contract imposes. We could even offer to help finance the short term expansion, particularly of wet production, at PLL ..."

The suggestion of financing PLL was put to Galileo in a letter of 15 June.

(h) July 1993

In early July, Anthony Galley prepared a report^[20] concerning PLL's business prospects over the following 18 months. It was sent to Mr. Fruth and Mr. Lichtwardt. The executive summary at the end of the narrative part of the report refers to the difficulty of making an accurate projection of the disposable sales to be made by OSI and AVCL. At the back of the report there are tables setting out, month by month, both historical sales and projected sales for OSI and PLL. Four things are apparent from these tables: (1) That AVCL were intending to introduce new 38% and 55% disposable products in July of that year, (2) that as far as the 55% product was concerned, there was no equivalent product being introduced in the United States by OSI, (3) that the sales of these disposables by AVCL were being treated as part of the covered product entitlement under the PSA and (4) that the disposables represented a fundamental part of AVCL's expected business, accounting for example for 28% of predicted sales in July, 1993, 61% of sales by December of that year and about 90% of sales by December, 1994. Mr. Fruth said that he did not recall reading the report. I have no doubt that he did read it and that he analysed the tables at the end of it. Mr. Fruth's interest was much more on the commercial than the technical side. This report would have been of importance to him.

This is significant to the issues in this case in the following way. Mr. Anthony Galley purported to modify the PSA to record the 38% and 55% disposables as covered products. The total numerical obligations and supply cap in the PSA were not altered but the qualifying products were. In this way AVCL could be assured of supplies of the disposables which PLL had agreed to make. The plaintiffs say that Mr. Anthony Galley, although managing director of PLL, had no authority to alter the definition of covered products in the PSA. He needed to have the approval of OSI, the sole shareholder in PLL. Effectively this meant that Mr. Fruth had to agree. Whether, as a matter of law, that view is right is an issue to which I will return later. But, whatever the position is as a matter of law, the defendants say that they notified Mr. Fruth of the addition of both products to the list encompassed by the PSA and that he approved or did not dissent. In relation to this Mr. Fruth said that, as far as the 38% disposable was concerned, he had agreed to this being sold to AVCL but solely on an "opportunistic" basis and only in the United Kingdom. In other words AVCL could sell disposable lenses but on a one-off basis without any guarantee of continuity of supply. They were not to be included in the PSA. As far as the 55% lenses were concerned, he said that he was never aware that such lenses were being offered to AVCL and, again, never agreed to their inclusion in the PSA. On these issues, I am satisfied that Mr. Fruth's evidence is untruthful. This will be dealt with under the next sub-section of this judgment.

In any event, at about the same time as this report was sent to Mr. Fruth, Anthony Galley sent him a detailed memorandum^[21] which deals with the question of disposable sales at length. The letter is headed as being concerned with manufacturing and operational issues. It says expressly that AVCL are launching a disposable product, although it does not detail the design of it. This is a matter to which I will return shortly.

This letter also talks quite openly about AVCL's interest in having its own manufacturing plant and it tells Mr. Fruth that a third party is interested in acquiring AVCL. It comments:

"... you will appreciate how important guaranteed supply, and eventually their own plant, is to such discussions."

The letter goes on to say that Mr. Galley was not enthusiastic about helping AVCL set up its own plant at that time but that in the longer term this was an issue which PLL and OSI would have to address. The openness with which Mr. Galley addressed the issue both of disposables and AVCL's interest in a future plant are notable.

The evidence given in relation to this letter illustrates not only the way in which Mr. Fruth has conducted this litigation but also the unreliability of his evidence. When the plaintiffs brought interlocutory proceedings against the defendants in this action, Mr. Fruth swore an affidavit in which he said of the July letter (referred to in the written evidence as a 'report' or 'note') as follows:

"It was in the manufacturing and operational issues summary of 1 July 1993 that I first became aware that [Anthony Galley] may have had a confused view about his obligations to PLL as opposed to Aspect. In Section 3 of the note, AG expressed views as to PLL's obligation to supply technology to Aspect should Aspect wish to establish its own plant. ..." (my emphasis)

That evidence was sworn on 7 June, 1994, 11 months after receiving the letter. This was consistent with Mr. Fruth's witness statement which had originally been drafted in 1995. In particular, that contained the following passages:

"I subsequently received a report from Mr. Anthony Galley to me dated 1 July 1993, updating me on various manufacturing and operational issues. I believe this report was prepared in advance of a meeting between us during Mr. Anthony Galley's visit to Puerto Rico and California in the summer of 1993.

Of particular significance to me was numbered Section 3 on page 7 of the report dealing with AVCL. When I read this section, it was the first time that I appreciated the extent to which AVCL were being allowed to market OSI's disposable lenses in the UK. ..." (my emphasis)

and:

"My conversation with [Mr. Lichtwardt] , together with [Anthony Galley']s 1 July report, led me to believe that Mr. Anthony Galley may have had a confused view about his obligations to PLL as opposed to AVCL."

and:

"In Section 3 of his note to me of 1 July 1993, Mr. Anthony Galley expressed views as to PLL's obligation to supply technology to AVCL should AVCL wish to establish its own plant. No such obligations existed under the agreements entered into on 30 September 1992. Mr. Anthony Galley also referred to discussions between AVCL and Pilkington and Bausch & Lomb regarding possible joint ventures or an acquisition of AVCL. Mr. Anthony Galley expressed his view that PLL would assist with equipment and technology for any new plants. Again, I did not then, and I do not now, understand the basis for this suggestion ...." (my emphasis)

This was clear and unambiguous evidence that Mr. Fruth had read the letter and was concerned at its contents. However when Mr. Fruth came to give evidence before me he started out by saying that his witness statement was wrong in suggesting that he had read the whole letter. He said that he now believed that he had only read the first two pages of it. This would mean that he did not then read Section 3 on page 7, i.e. the part which he had originally given evidence was "of particular significance" to him when he read it. Mr. Pumfrey cross examined him on this issue. Mr. Fruth said that he only realised that he had not read the whole letter a week before the beginning of this trial. He also confirmed that there was nothing in the two pages which he now conceded he had read which indicated any "confusion" on Mr. Galley's part as to his obligations to PLL. Mr. Pumfrey put it to Mr. Fruth that the reason for the change in his evidence was that he now appreciated that the 1 July 1993 letter did not support the plaintiffs' case. Mr. Fruth denied that that was the reason.

I have no doubt that Mr. Pumfrey's suggestion was right. Mr. Fruth did read the whole of the July letter when it came in and his evidence in his affidavit, at least in this respect, was accurate. The letter's contents were very important to the future of the PLL/OSI business. I have come to the conclusion that Mr. Fruth not only had read the whole of this document but was prepared to rely on it to further his assertions of underhand behaviour by Mr. Anthony Galley until he realised that in fact it pointed in the opposite direction. Mr. Fruth's evidence before me that he had only read the first two pages of this report was, in my view, not a result of a lapse of memory but a quite deliberate untruth.

Mr. Fruth's response to the July letter was quick. At some time in the following week he told Anthony Galley not to supply AVCL with any lenses beyond their maximum entitlement under the PSA. This instruction was communicated to Mr. Brooker^[22] by Mr. Anthony Galley together with the suggestion that he might like to re-negotiate with Mr. Fruth. Mr. Anthony Galley also sent his father a note, in effect saying "I told you so". A copy of the letter was also supplied to Mr. Lichtwardt. He noted the reference to disposables in the text and wrote in the margin "our disposables?"^[23]. Mr. Fruth confirmed that he was aware at this time that cutting off supplies to AVCL would ruin their business^[24].

(i) August to December, 1993

The real breakdown in the parties relationship can be traced to August 1993. On the 18th of that month, following Anthony Galley's suggestion, Trevor Brooker wrote to Mr. Fruth^[25]. The letter is important. In it Mr. Brooker tells Mr. Fruth that AVCL will need far more lenses than guaranteed under the PSA. He included projections for sales which showed expected sales of disposables reaching nearly 100% of total turnover. The letter goes on as follows, so far as material;

"We have recently been approached by the directors of a substantial company who have expressed an interest in acquiring an equity position in Aspect Vision Care Limited and forming a joint venture to market our lenses throughout Europe.

... We would it seems have two options in dealing with this situation; either to increase the number of lenses available under the supply agreement or establish our own manufacturing operation. Such an operation would clearly require an independent licence under the patent.

Whilst our proposed partners would be quite willing to fund the establishment of a separate manufacturing facility we ourselves would welcome the opportunity to purchase lenses from PLL provided that you were willing to make available the additional quantities of lenses required.

... In reviewing our future prospects it is apparent to us that we must either combine with a major company in order to secure the finance necessary for large scale development or alternatively continue to grow on an independent basis. Both of these options will eventually require the development or (sic) our own manufacturing base and we are therefore seeking your assistance for a limited period only, at the end of which we would expect to have our own facility in place.

Anthony [Galley] has pointed out that a third option might be to combine with OSI, which might have a number of material advantages. ..."

The letter went on to suggest that a merger would be subject to an equitable valuation of the companies. Mr. Fruth was put under some time pressure because towards the end the letter said:

"If [the merger] concept was of interest to the Board of OSI we would need to hold discussions at an early date as we are presently pursuing the joint venture option and we will need to decide one way or the other in the not too distant future."

This letter accurately records that it was Anthony Galley who was suggesting a course which would avoid AVCL becoming independent with its own production facility.

That letter was received by Mr. Fruth on 20 August. His reaction was immediate. It is clear that he instructed Mr. Lichtwardt to review the 1992 agreements to see what options were open to OSI. If the 1992 agreements were considered carefully it soon would have been appreciated that Mr. Brooker's reference to a third party taking an equity interest in AVCL could have significant long term consequences. In particular, if the interest taken was sufficiently big, it could amount to a Sublicence Triggering Event as defined in Clause 14.3 of the PSA which would entitle AVCL to demand from PLL, pursuant to Clause 14.2, a royalty free sublicence under the Galley patent to make, use and sell covered products on its own behalf. Whether or not this occurred to Mr. Lichtwardt, he produced a one page internal report the same day^[26]. Mr. Lichtwardt speculated that the maximum supply provisions in the PSA may have been exceeded, suggested that the disposables might not be covered products, the cost + 20% formula might not be being properly applied and the confidentiality in technology might not have been maintained. He then put forward 5 possible courses which might be followed;

"(1) OSI agrees to increase the quantity sold to Aspect according to their recent projections. New contract signed including the disposable and providing for Aspect to help finance the expansion.

(2) OSI sells only covered product per the original agreement according to the recent projections. Aspect is forced to take out a "fair market value" licence from patent holders to manufacture disposables.

(3) OSI stops supplying lenses to Aspect as soon as possible.

(4) OSI acquires Aspect

(5) OSI attempts to gain exclusivity over patents either separately or in conjunction with number (1) or (4) above."

Both Mr. Fruth and Mr. Lichtwardt appreciated that proposals (2) and (3) would seriously harm AVCL. I have no doubt that at or shortly after the date of this report, Mr. Fruth and Mr. Lichtwardt decided to embark on a plan either to purchase AVCL at a knock down price or cripple or destroy it. If OSI was not going to get AVCL, no one else was. This plan involved a number of simultaneous steps which interacted with each other.

First Mr. Fruth and Mr. Lichtwardt looked at possible ways of restricting supplies to AVCL. Of course the most harmful way of doing this would be to refuse to supply disposables. Mr. Anthony Galley's evidence was that on 23 August 1993 he received a telephone call from Mr. Fruth in which he referred to the letter he had received from Mr. Brooker dated 18 August 1993. Mr. Fruth asked him to stop supplying the 38% disposable lens to AVCL. Mr. Galley said that he could not do this as it was included in the PSA and PLL would be in breach if it refused to supply AVCL. He said that a heated argument developed between the two of them in which Mr. Fruth accused Mr. Galley of adding this product in defiance of his explicit instructions not to do so. Mr. Galley reminded Mr. Fruth that he had been called specifically for confirmation that the 38% disposable product could be added to the contract and he had had no objection subject to a limitation to sales in the UK. That limitation in respect of 38% disposables is noted in the amendment to the PSA. I do not think that there is any significant dispute as to the content of this telephone call.

The result was that on 25th August, Mr. Galley wrote^[27] to Mr. Fruth addressing the subjects raised in the telephone conversation. Although both the 38% and 55% disposables were addressed, most emphasis was placed on the former. In particular he wrote:

"With regard to the disposable 38% product in particular, I am most concerned at your questioning of my role and actions in this regard. ... I asked you about the disposable product and you said you had no problem with Aspect selling it in the UK because OSI cannot sell in the UK (*). There was no question of any re-negotiating the contract. ....

Once [AVCL] were granted the right to sell, they moved ahead with a product launch and invested in various marketing and support material. Before doing this, they sensibly asked for some confirmation of their right to sell the product. You would have done the same thing i.e. you would not invest in selling a product that could be withdrawn at no notice for no reason (**).

As far as my authority to actually extend the contract is concerned, since I signed the original contract on behalf of PLL, I must have the right to extend it. I did check with you first (***)".

The asterisks in this passage have been added by me. In the copy of the letter in the court file, the sentence ending with the mark (*) has been underlined by hand and carries a manuscript note in Mr. Fruth's handwriting which reads: "Not true. OSI can. Opportunistic only". Against the passage marked (**), the manuscript note reads "opportunistic". The sentence ending with the mark (***), is also underlined in hand and has a marginal note in Mr. Fruth's hand reading: "No". These markings are consistent with Mr. Fruth's evidence:

"In his letter, Mr. Galley attempted to justify his purported extension of the Covered Product definition in relation to the 38% flex wear disposable lens by claiming that it was ".... a normal business action and in no way connected to my interest in Aspect". Mr. Galley alleged that I had told him that I had no problem with AVCL selling the disposable product in the UK "because OSI cannot sell in the UK". As I noted in my manuscript comments made upon my first reading of this letter, which refer to OSI's willingness to supply this particular product on an opportunistic basis only, this statement was not true. As I have explained, I had only authorised PLL to sell a 38% polymacon flex wear lens to AVCL on an opportunistic ad hoc basis. Mr. Galley had not asked for and I had not consented, nor would I consent, to an amendment of the Covered Product definition. Further, there was no barrier to OSI selling lenses which were not Covered Products (such as the 38% polymacon flex wear lens) in the UK; the exclusive UK distribution rights which AVCL had acquired under clause 13.1 of the Supply Agreement were only in respect of Covered Products."^[28] (my emphasis)

There is no doubt that Mr. Fruth is in the habit of marking letters he receives in manuscript. They set out his immediate thoughts. However it became apparent during the course of his cross-examination that the copy of Mr. Galley's letter marked up as noted above and as commented on by Mr. Fruth in his evidence as supporting his account, was not the one he had received in August 1993 but was one marked up by him for the purpose of instructing OSI's lawyers in May 1994 at the time of the interlocutory proceedings. The version of the letter which he received in August 1993 was produced during the course of cross-examination^[29]. Significantly, against Mr. Galley's statement "I did check with you first", there is no marginal note, let alone one saying "no".

As far as the 38% disposables are concerned, I have no doubt that Mr. Fruth's evidence was untruthful. The whole point of disposables is that the customer is encouraged to throw away his or her contact lenses at regular and frequent intervals and replace them by new ones. The disposable market could only survive if the supplier is prepared to offer his customers some long-term security of supply. Mr. Fruth was cross-examined on this. He was prepared to accept that trying to sell disposables on the basis that the supplier could not guarantee further supplies would be a "hard sell" and a "point of contention" with most opticians^[30]. It appears to me that the suggestion of opportunistic sales in the disposable market would have been a commercial non-starter and would never have been accepted by Mr. Galley, just as Mr. Galley says in his 25 August letter, it would never have been accepted by AVCL. But in any event, it is quite clear from the July 1993 report that 38% disposables were being treated as covered products - i.e. not as mere opportunistic sales. The report shows that it was anticipated that 38% disposables would be supplied to AVCL in an even and unwavering manner from month to month. No protest was received in relation to this until the following year. I have come to the conclusion that Mr. Fruth not only knew of the sales of the new 38% disposable product but did not object to it being supplied under the PSA. The suggestion that his approval was limited to opportunistic sales is a fiction. In fact the word "opportunistic" is to be found only in the marginal notes written against the May 1994 copy of Anthony Galley's letter of 25 August, 1993^[31]. The earlier copy, which was also marked up by Mr. Fruth in manuscript, had been so marked at the time of its receipt. It is noticeable that no equivalent marking is to be found against the relevant paragraphs. Mr. Fruth could offer no explanation for this. In my view the suggestion that Mr. Fruth only agreed to 38% disposables being sold on an opportunistic basis was something he thought up in 1994 once litigation had commenced.

The position in relation to 55% disposables is somewhat more complicated. Mr. Fruth's original evidence was that the standard 55% product (i.e. the one originally sold as a non-disposable) was not suitable for use as a disposable. This led Mr. Pumfrey to cross-examine him about the tables behind the July report. Part of that lengthy cross-examination is as follows:

"Q. This document immediately shows, does it not, that AVCL are receiving lenses which you thought they should never have received, in very large quantities. Is that not right?

A. No, this document does not show that.

Q. Disposable 55% lenses, the one market you wanted to keep AVCL out of on your story, is that not right?

A. It is correct that we wanted to keep the disposable market for ourselves and the covered product was defined specifically for daily wear products.

Q. On the face of it AVCL are getting very large quantities of lenses which you thought, if that is what you thought, they had no right to obtain; correct?

A. I would not characterize these as very large quantities. The disposable lens market, I do not know what it would have been in the UK at that time, but we are talking about several hundred million lenses. The disposable lens market, these are very, very small numbers for the disposable lens market.

Q. This is right at the outset of the sales, is it not? Let us go over the page and see how Mr. Galley is contemplating December 1994. There are annual sales of over three million just to Aspect, do you see that?

A. Yes.

Q. Of that lens.

A. Yes.

...

Q. If we now look at the maximum allowed figures on page 131 it is quite plain, is it not, that it is contemplated by December 1994 that sales of that lens alone will be 3.1 million against total sales to Aspect of 3.95 or 3.96 million. Rather more than three quarters of all sales to Aspect by December 1994 are going to be that lens; right?

A. I do not know that the sales projections are the same as the maximum allowed. They seem to add up. That is the maximum allowed. I do not think it makes too much difference anyhow.

Q. It is a very substantial number indeed, is it not?

A. Yes.

Q. Not a niche market, is it?

A. First, these are 18-month projections which I think Anthony set off in the first part of that 18-month projection that it is very difficult to forecast numbers, accurate numbers. That would still be I believe with a relatively small share of the total overall disposable lens market but I could not say for sure."^[32]

It appears to me that Mr. Fruth was aware as a result of the July 1993 report that PLL was proposing to sell a new 55% disposable product to AVCL as part of its covered product entitlement. If, as he says, OSI always wanted to keep disposable sales to itself, the discussion of their introduction by AVCL would have been very significant to him. I accept that Mr. Fruth was very interested in what AVCL was doing and planning and that the future of disposables was of particular interest. However I do not accept that he was concerned to prevent AVCL from obtaining disposables as covered products. For reasons I have already given, any supply of disposables to AVCL without assurance of continued supply made no commercial sense. Furthermore, having AVCL supply a new lens to the market was useful to OSI. OSI needed FDA approval to introduce new lenses to the United States market. AVCL was under no equivalent restriction for the United Kingdom market. AVCL's sales were therefore something of a test marketing from OSI's point of view. In addition there were commercial advantages in allowing AVCL to treat new disposable lenses as covered products. As covered products, AVCL would have exclusive sales rights in the United Kingdom. From a practical point of view this was not a restriction of OSI because the latter company had no commercial presence in the United Kingdom and it was not suggested that it was interested in developing one. Secondly inclusion of disposables as covered products would also give AVCL rights to sell in most foreign markets but again this was not of major concern to OSI since its foreign sales were minuscule. Most importantly, however, the inclusion of new disposable lenses as covered products would prevent AVCL from marketing in the Americas. This was OSI's exclusive territory and it made good commercial sense to ensure that the disposables market there, which was viewed as the future growth area, should be secured to OSI.

In any event, as soon as Mr. Lichtwardt became involved in a close scrutiny of the September, 1992 agreements he sent a memorandum to Anthony Galley asking him to confirm the design and specifications of lenses then being sold to AVCL as disposables^[33]. In his reply of 25 August, Anthony Galley said:

"... we supply Aspect with the 38% Z4 Disposable that we make for OSI. So far they have purchased 6,000 of these. Their main product is the 55% material. The plus lenses are the same as those used for the non-disposable 55% which is also sold to some of OSI's international customers. These are 8.8/14.2. The low minus lenses are 8.6/14.2. ..."^[34]

I have already pointed out that Mr. Fruth knew that the 38% disposable was a new product. The figures of 8.8 and 8.6 in the above quoted passage refer to the radius of curvature of the back surface of the lens. The 14.2 refers to the overall diameter of the lens. The only 55% lens listed as a covered product in the PSA as originally drafted was the one with the 8.8 back curve. This letter makes it clear that only the plus lenses were the same as those originally listed in the agreement. The other members of the range of disposables in the 55% material had a new and different base curve, i.e. 8.6. They were clearly different products. Mr. Fruth gave evidence that he did not know that AVCL was being supplied with a 55% disposable made to a new design until April of 1994. I do not believe him. This letter discloses that a different product was being supplied to AVCL for part of the 55% disposable range. I am sure that Mr. Fruth and Mr. Lichtwardt both read and appreciated that at the time. I have already explained why they were very interested in AVCL's plans particularly in relation to disposables. It is true that these new lenses also had a different centre thickness to those originally sold as 55% lenses and that difference was not referred to in this letter. However that is of little consequence. What Mr. Fruth and Mr. Lichtwardt wanted was confirmation that AVCL was being supplied with lenses which were not as specified in writing as covered products in the PSA. That they now had. However they said nothing. In particular they did not ask Anthony Galley to stop supplying. No adequate explanation was given for their failure to raise the question of the new products for many months. This is particularly significant in the light of the whole thrust of Mr. Fruth's evidence to the effect that he would never have allowed AVCL to have products other than those originally identified in the PSA. I suspect that they intended to allow AVCL to become ever more dependent on the disposables, as AVCL's disclosed sales projections anticipated, so that if they decided to stop supply the effect would be even more damaging to AVCL's business.

In relation to the issue of the 55% disposables, it was suggested that Mr. Anthony Galley camouflaged what PLL was supplying to AVCL. I have considered the evidence put to me on this issue with some care. I think it is true that once Mr. Fruth started to show hostility towards AVCL, Mr. Galley did not go out of his way to raise the temperature by emphasising the ways in which PLL and AVCL were cooperating. This was not a matter of deceit in my view but merely to avoid unnecessary and unreasonable arguments with Mr. Fruth. At no time was Mr. Galley putting PLL's interests second. It was more a matter of him not putting Mr. Fruth's frequently unreasonable demands first. In relation to the 55% disposables, Mr. Galley did not tell OSI that part of the range was thinner than the standard 55% product. He only told them that the new lenses were to a different base curve. On balance I think it probable that his view was that it was sufficient to tell OSI that part of the 55% disposable range was a new product without emphasising all the differences in the product. Any such emphasis would only have generated further disputes which would not have benefitted PLL. In any event, as noted above, OSI were made aware that the 55% disposable range did include lenses to a new design.

The second strand in the strategy was for Mr. Lichtwardt to look at the cost + 20% calculations, which had always been openly disclosed by PLL to OSI, and try to think of ways of putting up the price to AVCL. In August the cost being charged to AVCL was well under £1 per lens. With increasing volumes the cost + 20% formula was expected to give ever lower prices as the cost of product fell due to economies of scale. At the end of August, Mr. Lichtwardt thought that he could push the price as high as £1.29^[35]. The issue of pricing was raised between PLL and OSI with OSI demanding that AVCL be charged much more for its lenses. There was lengthy discussion and correspondence, particularly between Anthony Galley and Mr. Lichtwardt on this issue with the former protesting that the latter was changing the ground rules, was not applying the contract and was being unreasonable. I suspect that Mr. Fruth and Mr. Lichtwardt appreciated that a significant increase in the price charged to AVCL might well also help them to secure the first strand of their strategy, namely cutting off supplies. If the price charged to AVCL was so high that it could not trade at a profit, it had the option of either making a loss or refusing to purchase lenses at the inflated price. However the latter course would amount to a breach of Clause 2.2 of the PSA. Failure to rectify such a breach would give PLL the right to terminate the agreement and supplies permanently.

The third strand was to pursue, or at least appear to pursue, the merger proposal made in Mr. Brooker's letter of 18 August. To this end Mr. Lichtwardt signed a confidentiality undertaking and then, at the end of August, he was supplied with detailed information concerning AVCL's business, projections and, importantly, its profits. OSI sought to put pressure on AVCL by insisting that a higher cost be paid for lenses and suggested that further costs should be included in the calculation of the price to be charged. In a memorandum of 12 October^[36], Mr. Lichtwardt told Anthony Galley that OSI would not play "hardball" over the question of price while merger discussions were proceeding but that in the interim a price of £1.00 per lens should be charged. (Mr. Galley accepted that and passed on the charge although he made it clear that this price was incorrect in his view and resulted in AVCL over-paying.) Mr. Lichtwardt also said that if AVCL ended up forming a joint venture with a third party rather than combining with OSI;

"we would take the most aggressive stand legally permissible under the contract and in the spirit of the supply agreement."

Of greater importance, as a result of their access to AVCL's internal documentation during the merger discussions, Mr. Lichtwardt could see just what price for lenses would render the AVCL business non-viable. In an internal memorandum to Mr. Fruth also dated 12 October, he discussed how the cost + 20% figure could be raised to £1.04. However, Mr. Lichtwardt noted that this would result only in "negligible additional billing" and he said that "even more aggressive approaches are possible". In particular he stated;

"By my rough calculations, we could be looking at a finished lens price to Aspect of around 1.55 to 1.60 pounds if we took a more aggressive approach. While this creates additional profits to PLL of $220,000 per quarter, it would also wipe out all profits on Aspects books."^[37]

Whether OSI ever intended to purchase AVCL or was in a financial position to do so is not a matter I feel it is necessary to resolve. There was some evidence that OSI was in an unhappy financial position at this stage. What is clear is that OSI suggested acquiring the whole of AVCL's business, including its export sales which accounted for 30% of its turnover, by applying a multiplier to the UK profits only. Mr. Fruth suggested that the export business should be acquired, effectively, for nothing. Furthermore OSI proposed that the price to be paid for AVCL should be worked out as a multiplier of a subsequent year's profits and that the price should be paid in 5 years time. In the meantime all profits of the business should pass to OSI. Since OSI could manipulate the profits once it was in control of AVCL, on this formula the shareholders in AVCL could not be certain of getting anything even after five years. Furthermore in view of the delayed payment provision, Mr. Fruth accepted that one way of looking at his proposal was that AVCL was going to be paying the price for being taken over by OSI^[38].

I cannot believe that Mr. Fruth ever believed that AVCL would be prepared to accept any such offer except, possibly, under duress. I have no doubt that Mr. Lichtwardt's threat to play hardball and take the most aggressive stand legally possible was intended to soften AVCL up. On Monday, 25 October Mr. Fruth and Mr. Anthony Galley had dinner together. Mr. Fruth said that the OSI Board had decided to make an offer for AVCL. Among other things, Anthony Galley's evidence was that Mr. Fruth told him that if AVCL did not accept the offer, OSI/PLL would supply the minimum number of lenses it could at the maximum price it could justify in order to make it impossible for AVCL to build up the scale of its operations and hence construct a plant. Mr. Fruth denied that he said that. Mr. Anthony Galley was not challenged on this in cross-examination. I accept Mr. Galley's evidence. This was indeed Mr. Fruth's plan.

The OSI offer was discussed at a meeting with Mr. Brooker and Anthony Galley in England on 16 November. Mr. Brooker said that it was not at all attractive. Mr. Fruth then again issued a stark threat. He said that if the offer was not accepted, he would make sure the price of lenses was increased and he would ensure that PLL give AVCL 18 months' notice under the PSA. He said that if AVCL set up its own manufacturing facility, he would treat it as a competitor and supply the minimum possible number of lenses at the maximum price during the 18 month notice period. He also said that if either of the Galley's tried to give AVCL any assistance in setting up a plant he would cut off supplies. There is, in my view, no basis in the PSA for PLL cutting off supplies if either the Galleys were to assist AVCL in setting up a plant - even if such activities amounted to breaches of contracts binding the Galleys. But that was not a concern of Mr. Fruth. He had decided, by one means or another, to prevent AVCL going its own way. He knew from his own experiences with CooperVision and OSI-1 just how effective cutting off supplies could be in destroying a distribution company. The substance of these threats were recorded in manuscript notes by Mr. Brooker^[39]. Their authenticity was never challenged. On the contrary, during the cross-examination of the defendants' witnesses they were treated by the plaintiffs' counsel as authentic^[40] and formed part of the plaintiffs' case that the defendants embarked on their project to build their own plant with their eyes open.

It was not only to Mr. Brooker and Mr. Anthony Galley that Mr. Fruth uttered his threats. In November he had dinner with Mr. Bevis. The latter's evidence, which I accept, was as follows:

" I drove Mr. Fruth to the Balmoral public house. Mr. Fruth told me during lunch that OSI had an opportunity to buy AVCL. He said virtually straight away that if he did not acquire AVCL, he would fire Anthony Galley, as there was a conflict of interest between PLL and AVCL. He said that "he had been screwed by the Galleys once too often". I replied that I could understand him having difficulties with working with Geoffrey Galley but not with Anthony Galley. Mr. Fruth merely said that Anthony Galley could be just like his father. I asked him what he meant by the statement about being screwed by the Galleys but he did not answer. ... Mr. Fruth calmed down a bit during the meal and then told me that if he were successful in buying AVCL, he would make Anthony Galley a senior Board member at OSI. ... Mr. Fruth then told me that if he was not able to acquire AVCL, he planned to supply the minimum number of lenses to AVCL at the highest possible price and then discontinue supply after a period of eighteen months as per the Agreement. I reminded him that I was a director of AVCL and that the company had a Supply Agreement with PLL. He did not particularly react

when I reminded him about my AVCL directorship but merely said he was within his rights to take this action under the Agreement. I asked Mr. Fruth how AVCL was to survive without a supply of lenses and he just shrugged his shoulders. I recall that I said AVCL would go bust without a supply of lenses but I then suggested that in those circumstances, I and the other Patent Owners would be obliged to grant a licence to AVCL to manufacture its own products. Mr. Fruth immediately told me that this was impossible, as I and the other Patent Owners were bound by contract not to do this. I knew from the documentation I had read and signed at the time of the merger that this was not the case and said so. Mr. Fruth further stated that he would take legal action personally against anybody who helped AVCL in taking any such step. He made it very clear that he was very serious about that."

Mr. Fruth disputed Mr. Bevis's evidence on this point. Once again, I do not believe him.

I do not believe that prior to late October or early November, 1993 either of the Galleys or Trevor Brooker ever anticipated that Mr. Fruth would try to destroy AVCL. Indeed the openness with which Mr. Brooker had discussed AVCL's plans and disclosed its books to him show the opposite. Having listened to all the evidence I conclude that they really thought that Mr. Fruth would behave reasonably if, perhaps, with bad grace. They saw that even if AVCL went its own way it could be done in a way which strengthened OSI/PLL and that was something they wanted. After all the Galleys were still significant shareholders in OSI.

However towards the end of 1993 Geoffrey Galley and Mr. Brooker realised that Mr. Fruth's threats might well not be idle. What they considered to be an insurance policy had to be put in place. In effect they had to ensure that if Mr. Fruth carried through his threats they would have an alternative manufacturing facility ready to go on stream. To achieve this they needed to order equipment for a new plant, but in secret, and, if possible, either deter Mr. Fruth from taking his threatened course or at least delay him. In the meantime Anthony Galley, who from October 1993 had decided that Mr. Fruth was untrustworthy^[41], continued to hope and even believe that sense would prevail.

As a result of these worries, towards the end of 1993, Mr. Geoffrey Galley started planning and ordering the equipment necessary for the construction of a contact lens manufacturing facility. Of all the personal defendants in this action, he had known Mr. Fruth longest and the best. I think that he, more than any of the others, appreciated the extent to which Mr. Fruth would be prepared to go to damage or destroy AVCL. A patent licence was granted to AVCL. The precise date on which this happened is the subject of dispute but I find as a fact that this happened just before Christmas of that year. There is no dispute that for the purpose of constructing its new facility, AVCL used or ordered by reference to PLL's drawings. As I have already said, Mr. Geoffrey Galley had a set of microfilms of PLL's pre-30 September, 1992 drawings. The circumstances in which and why he had these was also in dispute between the parties. In any event they were used for the purpose of designing and ordering some of the equipment AVCL would need for its new production lines. Those were to be, in substance, clones of the PLL production lines operating essentially the same process to produce lenses which, to the customer, would be indistinguishable from the PLL lenses.

At the end of 1993 Geoffrey Galley approached his old friend, David Stern, to whom I have already referred earlier in this judgment. On 12 December, he wrote Mr. Stern a letter. In so far as material it reads as follows:

"Unfortunately I came back to a most upsetting situation in relation to business. I think I may have told you on the phone that we offered to merge Aspect with John Fruth's company OSI. While I was away John came to England and made a silly offer to buy Aspect for a multiple of UK profits only (Aspect is doing very well outside the UK). More serious is the fact that he threatened to suspend Anthony from his position as MD of PLL and give notice of termination of supply to Aspect (18 months) if we did not accept his offer.

He threatened to cut of supply of lenses to Aspect if Anthony or I help Aspect build a plant which Aspect has a perfect right to do under their supply agreement. I really don't know whats come over John. He was always a little difficult when he thought he was getting the wrong end of a deal (usually wrongly) but he must be going mad to treat Anthony this way after the way he has worked for him.

The outcome of all this is that we can no longer trust OSI to reliably continue supplying lenses to Aspect. They have already started making suggestions about a price hike on a basis which is completely contrary to the supply agreement and no doubt they have other strong arm tactics in mind.

We therefore need to build a new lens plant which I hope will be better than the existing one. We are entitled as patent owners to license anyone and to assist them in building a plant but we are only entitled to the technology as it existed at 30th September 1992 when we merged PLL with OSI. This is no problem as the technology as it existed at that date is all we require. I don't even know if they have made any improvements as although I have been a consultant for 15 months I have been there for only two days to meet the FDA inspector.

David, would you be interested in giving Aspect and the patent owners a hand in establishing a new plant which we need to do quickly even if we don't have to use it at once. At the outset we could communicate by telephone fax and letter as the initial work would be deciding what equipment to place on order.

...

You helped me once before and look what it lead to. Over 20 million lenses a year are now made in England from the technology you helped initiate and most of them are still using your original bolster design. I would really love to renew our association in this exciting venture."

In my view this letter accurately reflects Geoffrey Galley's thoughts at the time both as to what the threat was and as to his entitlement to use pre-September 1992 technology. His assessment of the risk was fully justified. In view of the fact that he thought that he had rights to all the necessary technology and would have no difficulty in ordering the correct equipment, what was the purpose in engaging the help of Mr. Stern? The plaintiffs suggest that the explanation is that Mr. Galley was about to embark on an illegal activity and knew it. He wanted to have Mr. Stern involved so as to give a false picture of independent sourcing to deflect the inevitable allegations of breach of confidence. I do not accept that. By this stage Mr. Fruth had threatened to cut off supplies if Mr. Galley helped in the establishment of an AVCL plant. I think it is likely that Mr. Galley realised that he would need to show that AVCL had at its disposal an expert in the technology who could have done precisely what Mr. Galley intended to do to assist in the setting up of the plant. Mr. Stern was to be that expert. Mr. Galley's view as to his entitlement to the pre-September 1992 technology was firmly and sincerely held. Whether, in the light of the 1992 agreements, it was a correct view is an entirely different matter to which I will have to return later.

(j) January to March, 1994

In early January, 1994, Anthony Galley looked again at the price being charged to AVCL. He was still convinced that the prices being suggested by OSI were unjustifiable. On 20 January he sent a reworked set of calculations to Mr. Brooker and notified him that the cost to AVCL for the quarter to December 1993 should have averaged £0.74 per lens. He said that that would be the price charged for the first quarter of 1994. He notified this change in pricing to AVCL without prior notice to OSI.

In the meantime the Fruth threats to cut off supplies were being taken seriously by AVCL. At a directors' meeting on 24 January, there was a discussion of whether it would be possible to obtain an injunction to force PLL to continue to supply. At this stage AVCL and its directors, including Anthony Galley, thought that any termination of supply by PLL would be a wrongful act which it might be possible to prevent by legal proceedings. Furthermore the minutes of the meeting^[42] show that, in the light of the Fruth threats it now looked certain that AVCL would need to develop its own manufacturing facilities. On the next day, Mr. Brooker sent a letter^[43] to the Board of OSI rejecting the terms proposed for the merger as inadequate, noting the threats made and indicating AVCL would have to build its own plant. It also said that precipitate termination of supply would be illegal and would result in court proceedings. The letter also suggested forcefully that the course threatened by OSI made no commercial sense to either side and that the parties should sit down and work out a sensible and co-operative future. Mr. Brooker was at pains to try to find a way out of the pricing impasse. He suggested that the issue be sent to independent arbitration with the cost to be met jointly by the parties. He said AVCL was also prepared to pay the difference between what they thought the price should be and Mr. Fruth's demand into an interest bearing escrow account. This offer was ignored.

The dispute with OSI then appeared to go to sleep. Although Anthony Galley attended a social event with Mr. Fruth in the United States at the end of January and spoke to him on the telephone in mid February, no further mention was made of the earlier threats to remove him as managing director of PLL or to terminate supplies to AVCL. A few days later Anthony Galley spoke to Mr. Lichtwardt. The latter said that he and Mr. Fruth wished to revisit the issue of OSI/AVCL merger. Whether this was true was not investigated at the trial. At about the same time Mr. Lichtwardt sent to a Mr. Maher, who had been employed in PLL at Mr. Fruth's insistence, two memoranda. The first^[44] instructed Mr. Maher to rework the cost + 20% calculations "to identify the highest cost possible for the Aspect products". This was to be done by employing any "customary but aggressive" methods of costs allocation. The methodology suggested by Mr. Lichtwardt was known as Activity Based Costing ("ABC"). The purpose was to develop an "aggressive but defensible" allocation of costs. This memorandum was copied to Anthony Galley. The second memorandum was on the same subject. It was not copied to Mr. Galley. It referred to certain additional costs which should be taken into account in calculating the AVCL price and added;

"We will decide later how, if at all these costs will be invoiced to you."

What was being suggested was that costs should be included in the calculation which had never been agreed with PLL and which, in fact, had not been incurred, paid or invoiced to PLL and which might never be. In other words PLL's production costs were to be inflated by the inclusion of what were, to all intents and purposes, entirely fictitious items. This was accepted by Mr. Lichtwardt when this document was put to him in cross-examination:

"Q. Now let us look at the words "if at all". Were you contemplating including something in the cost to Aspect that would not finally be charged to PLL?

A. Yes, I was, and I do not see anything at all in the supply agreement which says that the cost must be on PLL's general ledger. The supply agreement says, by my reading, that the costs must be related to dry processing or wet processing."^[45]

It was not suggested to me by Counsel for the plaintiffs that such a construction was possible or reasonable. I do not believe Mr. Lichtwardt when he said that that was his reading of the PSA. In any event, as will be explained hereafter, any misapprehensions he may have had on this issue were dispelled by expert accountancy advice he obtained subsequently.

On 7 March, 1994 Mr. Lichtwardt once again sent a memorandum to Mr. Maher in relation to the prices to be charged to AVCL. He described their joint task as follows;

"Please bear in mind that you are helping me to develop a substantially higher cost to Aspect than even the 1 pound price that we had been charging them last year. We intend to back bill for any amounts due so this should provide a sizeable inflow amount within the next 30 to 45 days."

In the course of these proceedings it has never been suggested that PLL had any entitlement to make any back charge. On 9 March, OSI threatened through their United States lawyers to cut off supplies if either the Galleys or Mr. Morland assisted AVCL to set up a competing plant.^[46]

In mid-March, Mr. Lichtwardt and Mr. Fruth attended a meeting in England with Anthony Galley. Mr. Maher was present. Mr. Lichtwardt produced a series of figures which indicated that the price which PLL should have charged AVCL varied between £2.21 and £1.57 per lens. Mr. Galley was informed that these figures were based on the ABC methodology which was then explained to him. Mr. Galley thought that the ABC approach was inconsistent with the methodology set out in Clause 3 of the PSA. He made his views known forcefully to the others. Notwithstanding these objections, Mr. Lichtwardt told Mr. Galley that the price to be charged for the January to March 1994 quarter would be £1.57. He said that Mr. Galley should not have reduced the price from £1.00. He also said that PLL owed £1,953,000 for under-billed lenses. Mr. Galley asked for time to consider the figures. A few days later, on 21 March, Mr. Lichtwardt sent a fax to Mr. Galley. Insofar as relevant it reads as follows;

"After further thought, I think it is important that we implement the new prices immediately to Aspect based on the work reviewed last Wednesday. This is especially important given that we had recently revised the billing downward to 77 pence from 1 pound. If, upon subsequent audit work, the final pricing under full absorption costing is determined to be lower then we can issue a credit for the difference retroactive to the day this is changed. We will separately have to deal with the issue of a back billing for previous shipments.

As such, please revise immediately your pricing on all future Aspect shipments to 1.57 through March 31, 1994 and 1.49 for the second quarter. I will leave it up to you to communicate this change to Aspect management."^[47]

No attempt was made during these proceedings to support the figure of £1.57 or any figure near it. It was accepted as being totally unjustified. When cross-examined in relation to this, Mr. Fruth, Mr. Lichtwardt and Mr. Maher all said that the figure of £1.57 was being put forward as a figure designed to encourage AVCL to negotiate a higher price than the 77p they were then being charged. It was however admitted that Mr. Galley was not informed that it was a negotiating figure, nor was AVCL. In my view the evidence on this from all three witnesses was blatantly untrue. The terms of the 21 March missive set out above make it clear that the £1.57 price was to be charged to AVCL. There was no question of it being negotiable. When Mr. Galley was sacked in April, among the 28 grounds put forward in his letter of termination as justifying his peremptory removal from office was;

"refusal to carry out Aspect price increase proposed by G Lichtwardt in a memo of 21st March, 1994"^[48]

In my view the explanation for the evidence from Messrs Fruth, Lichtwardt and Maher is simple. They knew that they could never justify the £1.57 price to the court and therefore sought to say that it was not really a price at all. Furthermore I think their evidence, and particularly that of Mr. Fruth and Mr. Lichtwardt, was designed to hide the real reason why £1.57 was to be charged to AVCL, namely that it was a figure which Mr. Lichtwardt on 12 October, 1993 had identified from AVCL's disclosed figures would "wipe out all profits on Aspects books". It is clear now, and was clear to the defendants at the time, that the price to be charged to AVCL was unsupportable under the PSA and intended to destroy AVCL's business. It was also clear by March, 1994, if it had not been before, that OSI was prepared to force PLL to breach its obligations under the PSA in order to achieve that objective.

In their closing submissions, the plaintiffs said;

"In the light of the expert evidence they have obtained the Plaintiffs do not contend that the price of £1.57 which OSI instructed ADG to put forward was correctly calculated in accordance with the terms of the PSA. In particular it included some elements which it was not appropriate to include as a PLL cost under the PSA. "

Insofar as that is intended, as I think it is, to suggest that it was only as a result of expert evidence that the plaintiffs realised the £1.57 price was incorrect, I reject it. The plaintiffs always knew the figure was untenable. A glimpse of the truth can be discerned in the following extract from the cross-examination of Mr. Lichtwardt:

"Q. Can you tell his Lordship, please, why it was you did not ask Aspect for 1.57 for which you had that day sacked Mr. Galley for not imposing?

A. I had changed my opinion about whether that was an appropriate price. I was trying to be, I think, agreeable because I was sure that that price would have come under considerable ridicule from Aspect.

Q. Did you tell the board of directors at the meeting which took place to dismiss Mr. Anthony Galley that you considered that the price was one that could be ridiculed?

A. I am sorry, did I tell who?

Q. Did you tell the board of directors of the meeting which you held to dismiss Mr. Anthony Galley that the price of 1.57 was a price which was capable of being ridiculed?

A. I do not believe so."^[49]

Although Mr. Lichtwardt went on to say that he did not think the price was ridiculous, I am sure he knew it was incapable of being supported. He wanted to charge a price which at least had an outside chance of being thought arguable under the PSA if OSI/PLL became embroiled in litigation with AVCL. £1.20 was that price.

On receipt of Mr. Lichtwardt's' 21 March letter, Anthony Galley called a PLL board meeting. The directors all agreed that the price adjustment was not justified, not compatible with the PSA, if implemented would expose PLL to costly litigation which it would be likely to lose and that it was not in the financial interests of PLL. They resolved not to implement the price rise. This decision was communicated to Mr. Fruth by means of a letter dated 25 March in which the reasons for refusing to impose the £1.57 were set out clearly. Mr. Galley expressed the view that for the directors to procure PLL to breach the PSA would be a breach of their fiduciary duties to the company. In his letter, Mr. Galley also tried to explain to Mr. Fruth that the course being adopted by OSI was likely to harm the commercial interests of PLL. Losing AVCL as a customer would deprive PLL of half its monthly cash flow. The reasons set out for refusing to comply with the Lichtwardt direction were, in my view, fully justified. Towards the end of the letter, Mr. Galley wrote;

"I am sure you will appreciate that none of us want to see PLL, or OSI damaged and would very much like to see a sensible resolution to this problem so it can be dispensed with and we can all move forward with the many more important tasks that face us."^[50]

Of course this was written when Mr. Galley and the other directors of PLL, Mr. Bevis and Mr. Atkinson, must have been aware that a final break in relations and litigation was a possibility. It could have been inserted with a view to casting the directors in a favourable light in the event of a dispute. Nevertheless, my assessment of the witnesses is that this paragraph is a true reflection of the feelings of the directors of PLL at the time. Neither their interest in OSI nor in AVCL would benefit from warfare between the two companies.

(k) April, 1994

It appears that Mr. Fruth and Mr. Lichtwardt must have been concerned at Anthony Galley's rejection of ABC methodology. They therefore resolved to seek the advice of KPMG Peat Marwick ("KPMG"), the well known accountants who were PLL's auditors. KPMG were instructed at the end of March or the very beginning of April. Mr. Maher referred to the terms of KMPG's instructions in an E-mail note sent by him to Mr. Lichtwardt as follows:

"I have a meeting tommorow (sic) morning with KPMG who as you know we have engaged to review our ABC product costing analysis and to comment on its acceptability under the terms of the Purchase and Supply Agreement with Aspect."^[51]

This is consistent with a letter from KMPG dated 14 April in which they said;

"... we confirm that we are willing to act as expert accountants on behalf of PLL.

You have asked us to prepare an expert report and, if necessary, to appear as an expert witness in Court. You have asked us to consider and report briefly upon the accounting aspects of the dispute; as discussed we will limit our preliminary work to the areas set out below:

* the costings implications of the agreement between PLL and AVC

* the principles adopted in the proposed new costing method

... You will understand that our duty to the Court as independent expert means that our final report must be objective and impartial. Whilst we will of course discuss our preliminary report (and any further reports) in draft with you and your legal representatives, the final content of our reports and our evidence in Court is a matter for us alone."^[52]

There are a number of oddities about the instructions to KPMG. First, they were given by Mr. Lichtwardt and Mr. Maher, neither of whom was a director of PLL at the time and one of whom, Mr. Lichtwardt, was not even an employee of the company. Notwithstanding that, the KMPG letter referred to above is addressed to "The Board of Directors, Precision Lens Laboratories Limited". I can only assume that Mr. Lichtwardt and Mr. Maher represented, contrary to the facts, that they were directors. Furthermore, although he was managing director of the company, Mr. Galley was not told that this was happening nor was any other director. When he found out he contacted KPMG to ask what was going on. They declined to respond. It is also apparent from the report that OSI were planning for litigation and must have anticipated that the justifiability of the £1.57 price would be a significant issue.

The KPMG preliminary report^[53] was received by Mr. Lichtwardt and Mr. Maher on or shortly after 15 April. The report was based, inter alia, on a reading of the PSA which had been supplied by them to KPMG. One of the first recommendations it made was that the directors of PLL should, as a matter of urgency, take legal advice in relation to the proper implementation of the PSA^[54]. KPMG noted that the agreement contained limited definitions and suggested that legal advice should be sought in relation to what costs were contemplated in the cost + 20% formula. Furthermore it is apparent that KPMG were not at ease with the applicability of ABC methodology to the PSA. They noted that;

"The Agreement would suggest ...that other overheads should be allocated on the basis of floor space which would not be usual under activity based costing. ... The directors of PLL should consider taking legal advice in relation to this matter."^[55]

Although at this time OSI was in discussions with its lawyers, I was told that the advice given by KPMG in at least four places in its report that lawyers should be consulted as to the true meaning of the PSA was not followed. This evidence was not challenged and therefore I accept it. However Mr. Lichtwardt and Mr. Maher said that KPMG had exceeded their brief and that they had never been asked to advise on the issue of whether ABC methodology was consistent with the PSA. Mr. Lichtwardt even went so far as to say that he gave what he thought were:

"very explicit instructions to the KPMG partner that I did not want him to opine on whether ABC was acceptable under the supply agreement. It is the reason that he came back with a report that in fact tried to opine on the supply agreement and whether ABC was appropriate that I never really in effect accepted this report from KPMG."^[56]

I do not accept that evidence. Mr. Lichtwardt never complained to KMPG that they had exceeded their brief and, presumably, had charged for doing so. If Mr. Lichtwardt really believed that they had done so, he would have protested. Mr. Maher eventually accepted that the version of the instructions as set out in his E-mail quoted above was accurate^[57]. The reason that KMPG's report was not taken any further was because Mr. Fruth and Mr. Lichtwardt were not interested in any advice to the effect that their approach to the PSA was incorrect. They wanted to charge a price which would cripple or destroy AVCL and they were not prepared to accept advice that they might be acting outside the PSA to stand in their way. No one from KPMG was produced as an expert witness at the trial.

There is one other matter in relation to the KPMG report which I should mention. At paragraph 3.20^[58] it states:

"The directors have informed us that substantial costs are incurred in the USA relating to production in the UK. These costs have not been recharged to PLL. Provided such costs do in fact relate to UK production, it may be appropriate to include such costs in the costing here. However, in order to do so it would seem necessary for these costs to be recharged from OSI to PLL. The Agreement refers to "PLL's dry cost" and "PLL's wet cost". This suggests that, in order for the USA costs to be included, they would need to be recharged to PLL so that they become PLL's costs rather than costs of OSI. We suggest that legal advice be taken on this point."

This is a reference to the "fictitious charges" to which I have referred above. The figure of £1.57 put forward by Mr. Lichtwardt to Anthony Galley included such charges. Notwithstanding KMGP's advice, and the fact that it was clearly correct, these charges were not removed by Mr. Lichtwardt. When Mr. Galley was sacked, inter alia because he had refused to charge AVCL £1.57 per lens, Mr. Lichtwardt and OSI knew that that figure was unsupportable.

Notwithstanding that he and the other directors of PLL had refused to implement the £1.57 price, Anthony Galley tried to carry on with business as usual. However by now Mr. Fruth had determined on his course of action. OSI appointed four additional directors to PLL's board. At a board meeting which was held on 19 April at the offices of PLL's accountants, the new majority of directors voted to dismiss Mr. Anthony Galley 'for cause'. No reasons were given for the dismissal before the vote but immediately after it a letter was given to Mr. Galley setting out 28 grounds which were put forward as justifying this peremptory move. Mr. Galley said he would need to consult his lawyers. Mr. Maher was then voted by the new majority of directors to be the new managing director. When this case came before Sir Peter Pain he expressed the view that, taken as a whole, the 28 stated grounds could not possibly justify instant dismissal and that it seemed crystal clear to him that Anthony Galley was dismissed without cause. Before me no attempt was made to support the overwhelming majority of the grounds set out in that letter. It is apparent that Mr. Fruth was prepared to scrape together any complaints, whether or not true, in an attempt to justify the assertion that Mr. Galley was sacked for cause. I have no doubt that there was only one reason for this. Under his contract of employment, if Mr. Galley was sacked without cause he was entitled to compensation and, importantly, he was no longer bound by the contractual restraints on competition. If, on the other hand, he was sacked for cause, no compensation was payable and the restraints on competition continued for a year. Mr. Fruth wanted a means by which he could seek to restrain Anthony Galley from helping AVCL. The letter of termination was that means. In the end, I think that this was accepted as the reason for the manner of Mr. Galley's removal from office:

"MR. PUMFREY: I am sorry, I miscounted the reasons for dismissal; I believe there are 28 of them. Do you consider it fair or proper to dismiss a man for 28 grounds without showing him the list of the grounds and without asking him for his comments on them before you dismiss him?

A. Yes, I do think it is fair under certain conditions.

Q. You see, Mr. Fruth, what you could have done was this: You could have constituted a board and you could, without dismissing Mr. Galley, have removed him as a director perfectly ordinarily. Did it ever occur to you to do that?

A. No.

Q. What you wanted to do was to bring his employment agreement to an end and what you did at the bottom of page 324 was suppose that by moving to characterize Mr. Galley's contract of termination as being for cause, bring Mr. Galley's anti-competition covenants into play; is that not right?

A. That was part of the decision, yes."^[59]

Almost immediately after Mr. Galley's removal from office, Mr. Bevis and Mr. Atkinson resigned from PLL out of loyalty to him.

On the same day that Anthony Galley was sacked, inter alia for failing to impose the £1.57 price on AVCL, Mr. Maher, on instructions from Mr. Lichtwardt and Mr. Fruth sent Mr. Brooker a letter which stated that "the price for the second quarter is £1.20"^[60]. That price was also arrived at by the ABC methodology and, like the £1.57 it was accepted by the plaintiffs as being unjustified. Mr. Lichtwardt's evidence in relation to this was, so far as material, as follows;

Q. Can you tell his Lordship, please, upon what basis was the sum of 1.20 calculated.

A. This was basically utilizing the ABC approach that Ciaran [Maher] had developed along with one other adjustment for the volume of lenses that were being produced.

...

Q. You had, when this price was notified by Mr. Maher, instructed Mr. Maher to send this notification to Mr. Brooker?

A. I believe Mr. Fruth gave him the instruction to do it.

Q. Mr. Fruth was there as well?

A. As I recall, yes.

Q. You had taken no advice, as Peats suggested you should, on any of the aspects of the ABC costing in its context in the agreements. Is that right?

A. I did not, no.

Q. This price was imposed, was it not, in the face of specific warning from a competent accountant that legal advice was necessary to see whether the costs should be calculated in the way that this 1.20 was; correct?

A. I just did not see it that way. I saw that we were trying to start a dialogue with Aspect over a more realistic pricing approach. I was not expecting that we were going to immediately dive into litigation which would require legal advice.

Q. This is not a negotiating tactic. It is a statement of the price that Mr. Brooker is going to be paying.

A. It is a statement of the price that Mr. Brooker is going to be paying.

Q. And this price was calculated ignoring the advice which you have received from Peats about the advisability of taking legal advice?

A. That is correct; we did not take legal advice.

Q. You imposed this price not caring whether or not this price could be justified either under ABC or under the agreements, did you not?

A. No. I was very concerned about whether this price could be justified and I felt that it was justified.

...

Q. This price was imposed because this is the price which you wanted to impose on Aspect and that was the long and the short of it, was it not?

A. This is a price that we had calculated that we were expecting there would be some conversation about."^[61]

The suggestions put to Mr. Lichtwardt by Mr. Pumfrey were all justified. In particular I have no doubt that Mr. Lichtwardt, and Mr. Fruth for that matter, knew that the price was not justified. The suggestion that this price, like the £1.57 price, was put forward with a view to opening negotiations was quite untrue. The letter from Mr. Maher was unequivocal, and was meant to be. £1.20 was the price to be charged. AVCL could take it or leave it.

On 25 April Mr. Brooker replied to Mr. Maher^[62]. He pointed out the that notice relating to £1.20 did not comply with the requirements in the PSA and was therefore defective. It was not suggested to me that he was wrong. He again made a sensible and generous offer for arbitration.

When Mr. Geoffrey Galley learned of the treatment of his son, he became extremely irate. On Sunday 24 April 1994 he, together with his son and Mr. Bevis, visited a number of PLL's managers and invited them to a meeting at the Solent Hotel in Whiteley the following day. He told those persons that he wanted to defend the accusations which were being directed by PLL's new Board at his son and himself. In effect all the senior managers and executives of PLL were invited. Mr. Galley's solicitor attended the meeting and said a few words. Geoffrey Galley spoke bluntly and at great length of the low regard he had for Mr. Fruth and Mr. Lichtwardt. He attacked their honesty. He said that they were embarked on a course which would harm PLL's business. He also disclosed the fact that AVCL was building its own plant. In fact, because of long lead times on some of the equipment, he had ordered the major items of equipment in December 1993 and January 1994. At the end of his peroration, Mr. Anthony Galley made a very short speech in which he expressed his pride in the achievements of PLL and his regret at his departure. The plaintiffs say that the meeting was to solicit the current employees of PLL to leave to join AVCL. Whether that is true or not, over the following weeks and months a significant number of senior employees did leave and joined AVCL. Geoffrey Galley arranged for the Solent Hotel meeting to be videotaped. Copies of the tape were sent to all directors of OSI including, of course, Mr. Fruth. The one to Mr. Fruth was sent under cover of a letter suggesting that it was still not too late to pull back from the brink.

On 28 April, Mr. Fruth replied to the Brooker letter which had offered arbitration on price. He said that in view of AVCL's plans to set up a manufacturing facility, that offer was rejected. Furthermore he said;

"... the pricing is a minor dispute - the violation of the covenants respecting competition is the major dispute."^[63]

This alluded to what was indeed Mr. Fruth's major concern. He did not want competition.

At this point, the relationship between the two sides reached new depths. AVCL owed PLL large sums for stock already supplied. PLL was obliged to supply AVCL with many thousands of lenses in accordance with its obligations under the PSA. PLL said it would not supply unless the money was paid, AVCL said it would not pay unless it was guaranteed continued supplies under the PSA. PLL would give no such assurance. On 11 May, Mr. Fruth wrote to Mr. Brooker saying;

"... we have just discovered that the 55%, 8.60, 14.2 lenses that have been shipped to Aspect are not product that is covered in the [PSA]. Therefore this product supply must be negotiated separately relative to price, quantity, delivery, territory and so on."^[64]

Two points arise in relation to this. First it was clearly untrue that this was the first time that OSI had discovered that PLL was supplying 55%, 8.6/14.2 lenses to AVCL. Those were precisely the lenses which were described, in the same terminology, as new products in Anthony Galley's letter to Mr. Lichtwardt of the previous August. Secondly it was quite apparent by this stage that OSI had no intention of allowing PLL to supply these lenses to AVCL. For what it is worth, under cross-examination Mr. Fruth said that he would have expected to negotiate a higher price with AVCL in relation to these disposable lenses. I do not believe he had any intention of negotiating with AVCL at any price. As for Mr. Lichtwardt, he said that OSI would have been prepared to negotiate a lower price for the 55% disposable lenses^[65]. That transparently untruthful answer was given calmly and without any sign of discomfort or embarrassment.

In addition to these matters of dispute, AVCL premises had for a long time been used by PLL as a warehouse for PLL. In April AVCL had a large quantity of PLL lenses warehoused on its premises. They were lenses which had not been paid for or ordered by AVCL. When it was clear that supplies were going to be terminated, AVCL refused to send the stock back. In its turn PLL indicated that it would not pay some £600,000 by way of royalties unless AVCL was prepared to pay for the goods supplied. There was a stand-off. Renewed suggestions of arbitration by AVCL were rejected. Each side accused the other of repudiating the agreements and accepted that repudiation. Although one more delivery was made by PLL to AVCL, effectively the manufacturer/supplier relationship came to an abrupt end in late April 1994.

Within a comparatively short time, AVCL managed to get its new plant on stream but it was incapable of supplying its own needs for some months. During that time it found friendly intermediaries who placed orders with PLL for the lenses and then, unbeknown to PLL and OSI, sold them on to AVCL. During this period, therefore, AVCL was supplying its customers at a loss. It was the only way it could stay in business.

The writ in the action was served on 19 May, 1994. On 26 May 1994 an application was made by the plaintiffs for an interlocutory injunction to restrain the defendants until trial from using or divulging confidential information of the plaintiffs in connection with the setting up of the AVCL plant. That application led to the swearing of a very large number of affidavits with numerous exhibits. The hearing before Sir Peter Pain extended over eight days in June and July 1994. Judgment was given on 14 July. Sir Peter declined to give the plaintiffs any relief although certain undertakings were given by the defendants. The matter therefore proceeded to trial. The statement of claim was not served until a week after judgment in the interlocutory proceedings. The issues raised on the statement of claim were numerous. Somewhat belatedly, the defendants said that PLL had repudiated the patent licence and that they had accepted that repudiation. They said that this had the effect of terminating that licence. They commenced proceedings for patent infringement by means of a writ and statement of claim served in February, 1995. They asked for the patent issues to be determined with the plaintiff's action. That request was acceded to by Jacob J. However he made that order subject to a stipulation that the defendants would not be entitled to carry out any experiments. The plaintiffs responded to the allegations of patent infringement by saying (i) that they were still licensed, (ii) that they did not infringe and (iii) that the patent was invalid. All these issues were therefore added to the list of issues in the plaintiffs' action and were considered together.

(l) Other proceedings against the defendants

It is clear that if the plaintiffs succeed on most of their claims in this action, the corporate defendants will be brought to their knees. It is likely that the same will apply to the personal defendants. Nevertheless the plaintiffs have another string to their bow. At some stage, although I am not sure of the precise date, the plaintiffs commenced proceedings against the defendants in the courts of California. The personal defendants applied to the High Court for an injunction against the plaintiffs to restrain them from continuing with those proceedings. No order was made on the application because the parties agreed to a stay of the US proceedings pending judgment at first instance in this action.

(m) The 18 month termination period

Before leaving this history there is one final matter which is relevant to the dispute between the parties. Once it contemplated building its own plant, AVCL wanted to do that in co-operation with PLL. For example one of the suggestions made by AVCL was that it should help fund the installation of additional lines at PLL. Such co-operation would mean that the transition from one source of supply to another might well be achieved in a way which was to the commercial benefit of all three companies. In particular, even if it decided to set up a plant and gave 18 months notice of termination of supply, that 18 months period would have been one during which AVCL and PLL would continue to trade, as they had in the past. It was never in dispute, and was expressly accepted by counsel for the plaintiffs, that AVCL would have had no difficulty at all in setting up good quality soft contact lens production lines within that 18 month period without recourse to any of the material which, in these proceedings, the plaintiffs claim as their confidential information. Such production lines would have made just as good lenses as the PLL ones to the same or better efficiency. In my view it became apparent during the course of the trial that the 18 month period would have allowed such lines to have been constructed, commissioned and tested and put into full production with months to spare. In fact one of the most time consuming elements in setting up such lines would have been the lead time on the delivery of some of the third party equipment which would be needed. Those lead times would have been, to all intents and purposes, the same whatever the detailed design of the equipment to be supplied. I have no doubt at all that, but for Mr. Fruth's well signalled intention to damage or destroy AVCL's business, AVCL would have disclosed to PLL its plans in full - as it started to do in the autumn of 1993. If that had happened a manufacturing facility of which no complaint could have been made would have been erected and brought on stream while, in the meantime, AVCL and PLL would have continued to trade profitably with one another. The fact that AVCL had to put up a plant with some speed was entirely due to the clear threat by Mr. Fruth to engineer PLL into charging improper prices and cutting off supplies. In the circumstances the course which was taken of putting up the plant quickly and in secrecy was a reasonable and proper commercial course to adopt and the only course to adopt if AVCL was going to continue as a viable company independent of PLL/OSI. However, even if it was reasonable or necessary for AVCL to set up a plant quickly, if in so doing it breached PLL's or OSI's rights, it would be liable.

Section 3: Breach of Confidence - General Issues.

The allegations of breach of confidence raise many issues of fact and law. It is easier to understand them if the technology used by PLL for making cast lenses is described, at least in general terms, at the outset. In the description I set out below I have avoided mentioning any matter which, by the time of the closing speeches, the plaintiffs still maintained was confidential.

(a) Making contact lenses by cast moulding:

The manufacture of soft hydrogel contact lenses can be split into two parts. The first consists of making the dry lens. This is called the dry stage of the process. The second, or wet stage, of the process consists of treatment of the dry lens in a way which makes it absorb the correct amount of water and thus acquires its final desired shape and optical power. It is possible to work out backwards from the shape of the final lens what the shape of the dry lens (i.e. the lens before hydration) is. From this it is possible to work out what the shape of the mould should be in which the dry lens will be cast.

(1) The moulds for making the dry lenses:

The essential stages in the production of the dry contact lens are illustrated by reference to the following drawings. Figure 2 is a highly schematic drawing of a dry lens. It has two major surfaces. The concave surface at the back of the lens is the one which, after hydration, contacts the eye. The forward convex surface of the lens is the one which primarily defines the optical characteristics of the lens.

Figure 2: The Dry Lens



The dry contact lens is cast in a two-part mould which is made of polypropylene plastic. The two parts of the mould fit together with a defined space between them. It is into this space that the monomers will be placed to be cured. Therefore one part of the polypropylene mould will define the forward convex surface of the dry lens. This part is called the female mould. The other part of the polypropylene mould will define the rear concave surface of the dry lens. It is called the male mould. In use the male mould fits into the female mould. Figure 3 is a highly schematic illustration of these two parts and the dry lens which is made in the space between them. For ease of understanding, the parts are shown separated. In use the male mould fits snugly in the female and the dry lens takes up all of the space between them. The figure also shows that it is the inner, concave surface of the female mould which defines the front surface of the dry lens. It is therefore this surface of the female mould which is optically significant and has to be made with precision. Similarly it is the front, convex surface of the male mould which defines the rear surface of the dry lens. It also has to be made with precision.

Figure 3: The dry lens and the

mould for making it:



Each time a dry lens is made, the polypropylene male and female moulds within which it was cured is thrown away. Therefore a contact lens manufacturer has to be able to make large quantities of male and female polypropylene moulds. These parts are themselves made in a mould. However the parts of this mould are made of metal which can be reused over and over again so that numerous identical polypropylene moulds can be made. Figure 4 below is a schematic exploded vertical section through a metal mould used for making a female polypropylene mould.The upper and lower metal parts are identified generally at A and B. The polypropylene mould made in it is indicated at C. The metal mould, like the female polypropylene mould made in it, is circular in cross-section. In fact the metal mould parts fit inside another piece of equipment called a 'bolster', the function of which is discussed below. The drawing illustrates that the convex upper surface of the lower part of the metal mould (B) defines the inner concave surface of the female mould. It is this surface of the steel insert which has to be made with precision. This is made from a circular rod of steel the top surface of which is cut on a lathe to the right shape. This lathing operation is highly skilled. Once cut on the lathe, the steel is polished. Because this is the part of the mould which defines the precision surface in the polypropylene mould, i.e. what will be the optical front surface of the finished lens, this steel item is called the "female optic insert". To fit this in the hole in the bolster, the insert is itself carried in a metal sleeve called the "female optic sleeve". The non-optic surface of the female polypropylene mould is defined by the shape of the upper part of the metal mould (A). Like the lower part it is made in two parts; a centre stainless steel part called the "female plug" and a "female plug sleeve" which is used to carry the female plug and which fits snuggly in a hole in a bolster.

Figure 4: The female polypropylene mould

and the parts used for making it.



The equipment used to make the male polypropylene mould is made in a similar manner. It is illustrated in Figure 5 below. However in this case it is the upper, convex, surface of the polypropylene part which has to be made with precision. Therefore the upper part (A) of the metal mould includes a precision cut steel insert, called the "male optic insert" which is carried within a part called the "male optic sleeve". The sleeve and insert fit together and will fit snugly into a hole in a bolster. The bottom part (B) of the metal mould consists of a central steel "male plug" carried in a "male plug sleeve". The plug and sleeve fit snuggly in a hole in another bolster.

Figure 5: The male polypropylene mould and

the metal parts used for making it.



Having described how the polypropylene moulds are made, it is possible to describe the way in which the whole process is operated. For the purpose of this description I have drawn heavily on the contents of a publicity video made by Geoffrey Galley for CV Laboratories before PLL was formed. CV Laboratories operated a cast moulding process which, save in relation to the floating edge feature, was in substance the same as that operated subsequently by PLL. The PLL process was, in most respects, a copy of the process used by CV Laboratories and was designed for PLL and installed and operated in its premises by personnel, most of whom had previously either carried out the same function in CV Laboratories or had become familiar with the equipment and plant used there. It has never been suggested that PLL did anything wrong by copying the CV Laboratories' process or the general features and design of the equipment used by it. It is not now suggested that there is anything confidential in those general features of process or equipment design or, if there is, that it belongs to either of the plaintiffs.

(2) The process for making the dry lenses:

The first stage of the manufacturing process consists of making the polypropylene moulds. As already mentioned, the lenses are made from a polymer which is created by chemical reaction in situ inside the polypropylene moulds. The polypropylene moulds themselves are made in a different way. Pre-made polypropylene is melted and has to be squeezed under pressure into the mould made from the metal parts illustrated in Figures 3 and 4 above. This is called an injection moulding process. Molten polypropylene is a viscous fluid. Injecting it into a mould requires the use of considerable pressures. There are a number of companies which specialise in the manufacture of general purpose injection moulding equipment which is capable of being used for injecting molten propylene or similar materials. One well known and common type of injection moulding machine is sold under the name "BOY". These machines have been used by CooperVision/CV Laboratories, PLL and AVCL. The BOY machine contain rams and pumps for bringing the parts of the mould together and filling it with molten plastic. So as to enable it to be used for injection moulding a variety of different shaped objects, the machine, in common with similar machines from other manufacturers, carries two bolsters. A bolster may be likened to the chuck on an electric drill - its function is to receive a variety of different working parts. Thus the ability to fit a number of different mould designs into the bolster enables one injection moulding machine to make a number of different designed moulded parts. The bolsters used with the BOY machine were "six impression". This means that they carry six sets of inserts so that six moulded parts can be injected simultaneously. Each bolster therefore contains 6 holes into each of which the insert + sleeve for making a mould fits. Thus one BOY machine will have two jaws which can be brought together. Each jaw will carry a bolster. Each bolster will be capable of carrying 6 sets of tools for making a mould. For example, if the male moulds are to be made from the metal parts illustrated in Figure 5 above, one bolster will be fitted with six sets of Male Optic Inserts + Male Optic Sleeves (A) and the other one will be fitted with six sets of Male Plugs + Male Plug Sleeves (B). In use the two bolsters will be pushed together so that six mould cavities will be formed between the six sets of tools. Another BOY machine can be set up to produce six mould cavities for the female polypropylene moulds.

Once the bolsters have been brought together, the molten plastic is forced up a duct in the centre of the bolster and from there it passes by a radiating array of 6 conduits into each mould cavity. The plastic is then allowed to cool and set. In so doing it shrinks a small amount. The hardened plastic in the central duct, radiating array of conduits and the moulds themselves are ejected as one piece when the jaws of the injection mould opens. The resulting piece of plastic is called a "flower" and is illustrated in Figure 6 below. The polypropylene moulds attached to the end of the radiating arms are called "petals".

Figure 6:



The flowers containing the male moulds and the flowers containing the female moulds are then put in a degating and pre-assembly machine. In that machine the male flower is "degated". This means that the petals are severed from the spokes and hub of plastic in the centre of the flower. The male moulds are suspended over the flower which is still carrying the female moulds or petals. They are then dropped into a corresponding female mould. The female is not degated. So the female flower still exists but now each 'spoke' has, at its outer extremity a female mould which carries within it a matching male mould. This pre-assembly is then passed to the filling machine. In this, the male moulds are temporarily lifted out of the female moulds and moved out of the way and a predetermined quantity of hydrogel monomers together with other additives is dropped into each female mould. The male moulds are then brought back over the females and are pushed down onto the monomer mix under controlled speed and pressure. The sets of 6 filled moulds, still connected to the spokes and hub, are stacked one on top of another and are then taken to a stage where they are heated, for example in a water bath or an oven, to a high enough temperature for long enough to ensure that the chemical curing reaction has been completed. During the curing stage the contents of the moulds shrink slightly.

The sets of 6 moulds containing the cured hydrogel is then taken to another degating machine where the spokes and hub are removed. Each filled mould is now separated from the others. Each mould is then opened and the dry lens within it is removed.

(3) Hydration of the lens.

The dry lens is immersed in a fluid bath for long enough to ensure that any unreacted monomer and other chemicals can leach out and for the lens to fully absorb water. The lens is now ready for packing. It may be subect to a tinting process. The lenses may be put into sterilised vials or, particularly in the case of disposables, into sterilised blister packs.

(4) The hydrogel.

The hydrogels used by PLL and AVCL, and many other companies, are known as Polymacon (otherwise known as polyHEMA or just HEMA) and Methafilcon A. The mixture put into the moulds consists of monomer units (which during curing stick to each other to form the polymer mass), a cross-linking agent (which effectively forms bridges between the polymer chains creating a stable three dimensional structure) and an initiator (which is used with heat to start off the polymerisation or curing reaction).

(b) Lens design.

The way in which lens designs are arrived at is covered with clarity in the evidence of Professor Efron^[66]. It is necessary to say something about it at this stage and to explain some of the terminology used. For this purpose it is helpful to have in mind one of the drawings Professor Efron exhibited to his report.

Figure 7:



Soft contact lenses are frequently in the region of 14mm. in diameter. They cover not only the pupil but also spread further and lie under the eyelids. The only part of the lens which assists in correcting vision is that which lies over the pupil. This area is called the optic zone. It is normally circular and it therefore has a diameter, called the optic zone diameter. The part of the lens surrounding the optic zone is called the peripheral zone. The thickness profile of the peripheral zone is called its lenticular form. When the peripheral zone is of uniform thickness it is said to have a parallel lenticular form and the lens is said to have a parallel lenticular carrier. The thickness at the geometric centre of the lens is called the centre thickness. The thickness at the point where the optic zone meets the peripheral zone is called the junction thickness. The thicknes of the lens edge is referred to as the edge thickness.

The designer of a contact lens has a number of features which he can vary in order to arrive at a lens of the desired power. For example it is the front radius of the optical zone which mainly determines optical power. For a particular hydrogel polymer, it is possible to have different centre thicknesses which produce a lens of the same optical power. However if the lens is too thick in the middle it may be uncomfortable or, more importantly, it may not be sufficiently permeable to oxygen. On the other hand reducing the centre thickness may not be satisfactory because it will reduce the junction thickness of the lens to a point at which the lens is difficult to handle by the patient or too fragile. Alternatively the bulk of the lens could be reduced by reducing the centre thickness and, at the same time, reducing the optic zone diameter.The following illustration demonstrates how reducing the optic zone diameter (the optic zone radius/diameter on the left is smaller than than the optic zone radius/diameter on the right) results in a reduction in centre thickness for the same power lens. This in clinical terms would mean greater comfort and gas transmissibility but perhaps slightly compromised visual performance at the edges due to the reduced optic zone.

Figure 8:



When a range of lenses is designed, the designer will start with the design of one power of lens, say the -3.00 dioptre lens, and then iterate the design in 0.25 or 0.5 dioptre steps up and down the range. For all members of the range he is likely to keep the overall diameter and back curve of the lens the same. He can alter the power by changing the optic zone radius, the centre thickness, the optic zone diameter or the junction thickness. He may start by changing the front optic radius, keeping the optic zone radius constant and allowing the centre thickness to vary from lens to lens. However after a number of iterations he may get to a design in which the centre of the lens is too thick or the junction thickness is too thin. Then he will have to make a decision as to whether to alter, for example, the optic zone radius. Alternatively he may decide to iterate by changing the front optic radius but keep the centre thickness constant with the junction thickness or the optic zone radius being allowed to vary from lens to lens. Once again a point is likely to arise during the iteration process at which some feature of the lens makes it clinically or commercially unacceptable. At that point it may be necessary to change the centre thickness. However he approaches the iterative design exercise, he will end up with a series of lens designs each one of which exhibits small differences from its immediate neighbours in the range.

(c) Translating the lens designs into mould designs.

The manufacturer has to determine what shape of metal inserts will produce the polypropylene moulds which, in turn, will produce the dry lenses which, on hydration, will produce the soft lenses he has designed. This is not a one-to-one relationship. What is involved can be explained by reference to the total diameter of the desired soft lens. In many lenses that dimension will be of the order of 14mm. However it might be that a particular hydrogel swells to twice its size on hydration. If that is so then a swell factor has to be added to the calculation of the size of the dry lens from which the hydrated lens will be made. The dry lens will have to have a diameter of 7mm. Now the dry lens is cured in the polypropylene mould. It shrinks slightly on curing. Furthermore the polypropylene mould itself shrinks slightly when it cools. Therefore, because of shrinkage, the metal mould from which the polypropylene mould is made will have to be larger than the expected final dry lens. If, due to shrinkage, the metal mould has to be 10% larger than the dry lens derived indirectly from it, then in this example the relevant diameter of the metal mould will need to be 10% greater than the 7 mm of the desired dry lens, i.e. 7.7 mm. By taking into account the swell factor and allowing for shrinkage, it should be possible to back calculate from the shape of the desired hydrated lens to the shape of the metal inserts used in the in injection moulding machine. That, at least, is the theory. In fact swelling and shrinkage are not exactly even in all directions and, more importantly, it is not possible to control all the steps in the manufacture of the lenses as precisely as the example given above assumes. Therefore swell factors and shrinkage factors are used in the calculation of metal insert designs which are workable compromises. With the benefit of these figures, which are dependent to some extent on the nature of the polymers used and the curing conditions employed, it is possible to design back to metal parts which should be in the right 'ball park' to produce the hydrated lenses of choice. Once the calculations have been done, a number of metal inserts are produced, as close as manufacturing tolerances will allow to the calculated figure, and from them a number of trial lenses are made. These are then inspected and their optical powers are measured. If the metal inserts produce lenses of the desired power, those inserts are retained and used for commercial production. If not, they are discarded. The process of making trial lenses and testing them is referred to as "validation" of the inserts.

The process of iterative calculation of the design of ranges of lenses and the subsequent determination of the insert dimensions was facilitated in PLL by the use of a computer program written by Anthony Galley.

The plaintiffs claim that the defendants have breached obligations of confidence relating to the design of the PLL equipment and lenses, the process and materials used and certain software which has been written to help in the management of the PLL business. I will have to consider each of these allegations in turn, but before doing so there are questions of procedure and law which need to be considered.

(d) Pleadings in a breach of confidence action

The rules relating to the particularity of pleadings apply to breach of confidence actions as they apply to all other proceedings. But it is well recognised that breach of confidence actions can be used to oppress and harass competitors and ex-employees. The courts are therefore careful to ensure that the plaintiff gives full and proper particulars of all the confidential information on which he intends to rely in the proceedings. If the plaintiff fails to do this the court may infer that the purpose of the litigation is harassment rather than the protection of the plaintiff's rights and may strike out the action as an abuse of process. Such a case was John Zinc Co. Ltd. v. Wilkinson [1973] RPC 717, in which the Court of Appeal ordered particulars before defence. The case returned to the High Court on a successful application to strike out. This is reported under the name John Zinc Co. Ltd. v. Lloyds Bank Ltd. [1975] RPC 385. As Edmund Davies LJ put it in the Court of Appeal:

"But this appeal does not, in reality, turn upon when an order for particulars may properly be made in the present case, but, instead, whether such an order should ever be made, and, if so, what allegations it should relate to and under what safeguards it should be complied with. As to whether an order should be made at all, it is not unimportant to bear in mind that in these civil proceedings the plaintiffs have made allegations of a grave character against both defendants, charging the second with procuring a breach of confidence or contract by the first by improperly divulging trade secrets. Some would say that an assertion of criminal conspiracy is thereby made against both. They could cite in support of that proposition R. v. Willetts (1906) 70 J.P. 127, where, notwithstanding that it is not a criminal act for a person to infringe copyright nor larceny to pirate music (see R v. Kidd (1907) 72 J.P. 104), it was held that an agreement to make pirated music for sale and so obtain profits out of that music to which the parties thereto had no right is indictable as a conspiracy to deprive the owner of the copyright of his property. If that decision is right (it is not without its critics) and if, as I think, the present case is analogous to it, it is pertinent to bear in mind that in Palamisto General Enterprises S. A. v. Ocean Marine Insurance Limited [1972] 2 W. L. R. 1425-a 'scuttling' case-Buckley, LJ said (at page 1440 F)-

"where a party asserts his opponent's complicity in ... criminal misconduct, the case is pre-eminently one in which not only the R.S.C. (Ord. 18 r.12(1) and Ord. 72 r. 7(2)) but also fair treatment require that, so far as practicable, the matter shall be pleaded with particularity, so that the party accused may know what case he has to meet".

But even if the allegations in the present statement of claim fall short of asserting criminal misconduct, they undoubtedly impute conduct of a gravely improper character which call for no less clear particularisation."

The requirement of particularity may impose a heavy burden on the plaintiff. In a case where the plaintiff has a large quantity of confidential information and much of it has been taken by the defendant, the obligation to identify all of it might involve a great deal of work and time. Whether in such a case the court would be receptive to a plaintiff who asks for leave to pursue the defendant on some items of confidential information only, the rest being left to another time, is a difficult question which does not arise in this case. The normal approach of the court is that if a plaintiff wishes to seek relief against a defendant for misuse of confidential information it is his duty to ensure that the defendant knows what information is in issue. This is not only for the reasons set out by Edmund Davies LJ in John Zinc but for at least two other reasons. First, the plaintiff usually seeks an injunction to restrain the defendant from using its confidential information. Unless the confidential information is properly identified, an injunction in such terms is of uncertain scope and may be difficult to enforce: See for example P.A. Thomas & Co. v. Mould [1968] 2 QB 913 and Suhner & Co. AG v. Transradio Ltd [1967] RPC 329. Secondly, the defendant must know what he has to meet. He may wish to show that the items of information relied on by the plaintiff are matters of public knowledge. His ability to defend himself will be compromised if the plaintiff can rely on matters of which no proper warning was given. It is for all these reasons that failure to give proper particulars may be a particularly damaging abuse of process.

These principles do not apply only to the question of the content of the pleadings. Just as it may be an abuse of process to fail properly to identify the information on which the plaintiff relies, it can be an abuse to give proper particulars but of information which is not, in fact, confidential. A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harrassment against a defendant. It can be used to destroy an ex-employee's ability to obtain employment or a competitor's ability to compete. The wider the claims, the longer and more expensive the litigation. The defendant is likely to feel that he has no alternative but to challenge the confidentiality of everything, even though he believes that much or most of the technology pleaded cannot reasonably be thought of as secret. Furthermore a defendant faced with a narrow claim may decide that the commercial realities point towards a tactical withdrawal. He may be able to relinquish use of the contested information yet stay in business. The possibility of doing this reduces as the width of the plaintiff's claims increases. The defendant is left no alternative but to fight on in heavy litigation, spending money on lawyers which he would much prefer to spend on building up what may be a new business. The attractions of this to a plaintiff bent on harming a competitor's business are obvious. Furthermore, the more technology put before the court, the easier it may be to obscure the issues. A competitor or ex-employee is entitled to copy non-confidential material, but if the plaintiff mixes a large amount of technology together, some of which has been copied by the defendant, there is a risk that the court will jump to the conclusion that some of what was copied must have been confidential. These considerations bring to mind the judgment of Templeman LJ in G.D. Searle & Co. Ltd. v. Celltech Ltd. [1982] FSR 92;

"The injunctions originally sought by the plaintiffs would have created a new form of industrial slavery and made it impossible for the individual defendants to work for anyone except the plaintiffs. The injunction C now sought is still objectionably broad and vague. The evidence of Dr. Felner in support attempts to blind the court with science by burying a number of secrets which are not threatened to be disclosed in a mass of techniques and information over which the plaintiffs are not entitled to any monopoly. The application for injunctions A and B confuses information which is confidential to the plaintiffs with information which is useful to the defendants but not confidential to the plaintiffs."

In the present case, the plaintiffs were reminded at the very outset of the obligation to give proper particulars of their confidential information. At the time of the interlocutory hearing before Sir Peter Pain, there was still no statement of claim. The prayer for relief on the writ was in the widest possible terms. The issue of particularity was raised by the defendants during the interlocutory proceedings. Sir Peter said;

"The Plaintiffs have been pressed to specify in what particular documents or records they say confidentiality lies. This they have wholly failed to do. Schedule B in their minutes of order sets out classes of designs, specifications, systems, etc., but it does not refer to any particular design or specific document. My decision is that this contention of [Counsel for the plaintiffs] fails because firstly, the Plaintiffs have failed to identify a design the property of OSI to which confidentiality might apply, and the injunction sought is on any footing far too wide and appears to refer to the whole of PLL's process. In my view the authorities clearly establish that an injunction protecting confidentiality must be quite specific as to what is protected. I refer to Shuner & Co. AG v. Transradio Ltd [1967] RPC 329 as a striking example of the application of this."

When the Statement of Claim came in a few days later it included a definition of the plaintiffs' confidential information which encompassed more or less everything. Insofar as material, it was in the following terms:-

"C. THE TRADE SECRETS AND/OR CONFIDENTIAL AND/OR PROPRIETARY INFORMATION OF OSI/PLL

10. In the course of the business of OSI ... OSI provided detailed lens designs and/or specifications (including dimensions and formulations) to PLL ("the Lens Designs") for the soft contact lenses particularised below. [A list of all of OSI/PLL's lenses was then set out]

11. ... the Lens Designs were provided and communicated to PLL in confidence and/or the Lens Designs were and remained at all times the trade secrets and/or confidential and/or proprietary information of OSI. Thereafter OSI tested and approved the Lens Designs at prototype stage. For the avoidance of doubt, all such tests, test results and approvals are included within the definition of Lens Designs and the same were and remained the trade secrets and/or confidential information and/or proprietary information of OSI.

12. Further ... for the purposes of processing the Lens Designs and in and for the process of dry manufacture and wet processing of contact lenses (and both before and after 30th September 1992) at its own expense PLL:

12.1 developed detailed lens specifications for each prescription of each Lens Design referred to at paragraphs 10 and 11 above;

12.2 produced engineering drawings and dimensions for each steel insert used to manufacture the moulds for each prescription of each such Lens Design;

12.3 developed procedures for and produced materials and information relating to the testing and validation of each insert and mould referred to at paragraph 12.2 above;

12.4 developed and/or used computer systems, programs, algorithms and software including but not limited to:

12.4.1 PLL's Management Information Systems; and

12.4.2. design software and, in particular, the software used to generate the aforesaid finished lens, steel insert and mould specifications referred to above;

12.5 developed and updated Standard Operating and Test Procedures ("SOTPs") relating to all stages of the design and manufacture of the said lenses;

12.6 developed and updated product descriptions, formulae and quality assurance, regulatory and other information (including SOTPs) and embodied all such information in the Device Master Records;

12.7 developed and updated other regulatory and quality assurance forms, manuals and guidelines in relation to contact lens manufacture;

12.8 produced, revised and updated drawings for and/or developed, manufactured (whether by PLL or by third parties to PLL's designs) tooling

and items of machinery for use by PLL in its said business including but not limited to the following machines or items and drawings: [The list then included; the Bolster, the Insert Sleeve, the De-gating Machine, the Filling Machine, the De-Petalling Machine, the De-Moulding Machine and the Floating off and wet processing Sections and the Tooling for Packaging]

12.9 made divers improvements, inventions, research and development projects, drawings, models, formulae, compositions of matter, machinery and material and mask works relating to the development, design, manufacture, marketing and sale of contact lenses and other optical equipment.

The divers matters set out above in this paragraph are referred to collectively as "the PLL Confidential Information".

The relief which the plaintiffs sought, and still seek, includes injunctions to prevent the defendants from making any use of or divulging to any person or attempting to make use of or divulging "the PLL Confidential Information".

The statement of claim went on to make the following allegations of breach;

"16. In breach of their respective obligations of confidence to OSI and PLL [the defendants] have:

16.1 established or sought to establish AVCL as a manufacturer of soft contact lenses:

16.1.1 to precisely the same designs and/or specifications as the Lens Designs or some of them, namely those marked 1 to 12 inclusive of the Particulars of Lenses under paragraph 10 above;

16.1.2 using the PLL Confidential Information or some of it and/or the said Storage Media or some of them to provide AVCL with a manufacturing process the same or materially the same as that of PLL;

...

17. By reason of the matters set out and complained of at paragraph 16 above, ... the PLL Confidential Information (or some of it)... have been communicated to and/or made use of by AVCL, ... .

18. Unless restrained by this Honourable Court the Defendants and each of them threaten and intend to make use or further use of and/or divulge or further divulge the ... PLL Confidential Information (or some of it)..."

The plaintiffs reserved the right to expand the particulars of breaches after discovery or interrogatories. The statement of claim was the subject of a request for particulars which was responded to on 9 May, 1995. It does not qualify the scope of the confidential information relied on by the plaintiffs. Particulars of breaches were given, including reference to the fact that the AVCL and certain of the personal defendants had used PLL drawings. On 16 January, 1996 the plaintiffs served another pleading which was amended on 4 June 1996. According to its title and contents, it was a Schedule of Use the purpose of which was to identify those items of alleged confidential information which had been used by the defendants. It did not, and it did not purport to, limit in any way the scope of the confidential information asserted by the plaintiffs. Nevertheless, in some passages, it alluded to what the plaintiffs' claimed to be their confidential information. Furthermore in many places the particulars given were followed by the words;

" The Plaintiffs contend that the Defendants will have used such information in the design of their [allegedly offending item] but are not able to at present give particulars of the use made by the Defendants of the Plaintiffs' confidential information, such use being within the knowledge of the Defendants, pending interrogatories, further discovery or cross-examination herein."

Therefore the position on the pleadings was that very wide claims to confidential information were made and allegations of breach were made in relation to some of the information with the caveat that the allegations of breach might be widened as a result of cross-examination and discovery.

Up to and during the trial, items of alleged confidential information were dropped, one by one, from the case. However, in my view it must have been clear to the plaintiffs from the outset that some of their claims to confidentiality were extravagant and unsupportable. There are numerous areas where this must have been the case but, for the purpose of this judgment, I will refer at this stage only to two as examples.

(1) The claims relating to hardware.

In their Schedule of Use, the plaintiffs asserted that

"All of the process machinery has been specially developed and/or adapted for the purpose of the Plaintiffs' process. Substantial skill and labour has been expended in the development of the machinery, and except where otherwise stated, the machinery is not available in the public domain, and the designs therefor are proprietary to the Plaintiffs." (my emphasis)

In the pleadings there were, as far I could see, no concessions of public domain in relation to machinery or, indeed, anything else. In relation, for example, to the mould tools, the plaintiffs then asserted that their confidential information consisted of;

"the designs, annotations and/or dimensions for 6 cavity mould tools shown in drawings A0-1000 and A0-1001 for the female and male mould tools respectively." (my emphasis)

Similarly in relation to the metal parts which fitted into the bolster to form the mould into which the polypropylene would be injected the plaintiffs said;

"all information relating to the tooling for the production of the steel inserts and insert components is confidential." (my emphasis)

From this it followed that the plaintiffs were seeking to prevent the defendants from using or divulging any of those designs or information. The defendants understood this to be a claim which, if successful, would prevent them from making any tools or machines which were to substantially the same design as the plaintiffs', even if the detailed dimensions were not employed. That was an accurate assessment of the plaintiffs' claim and I have no doubt that it was what the plaintiffs wanted the defendants to understand. The result of such a claim, if successful, would be that the defendants would have to design all their equipment from scratch.

However it became apparent at early stage of the trial that a claim in such wide form was untenable. Nearly all the equipment used by PLL was copied from the equipment which had been used by CV Laboratories/CooperVision. It is not suggested that this was wrongful. CV Laboratories never kept the design of its equipment confidential. That is not surprising. For example one of the witnesses, a Mr. Roote, described the equipment as quite plain, simple production engineering^[67]. It was not suggested that it contained anything surprising or novel. CV Laboratories' lack of concern about the general features of the design of its equipment is illustrated by the fact that it produced the advertising video bearing Mr. Geoffrey Galley's voice-over to which I have already referred. This illustrated the design of equipment used and described the manufacturing process in some detail. Most of the equipment in that video was indistinguishable from the equivalent PLL equipment. It is quite apparent that the general features of the design of the equipment are not confidential and had never been treated as such and that, even if there had been proprietary rights in the designs, it belonged to CooperVision or CV Laboratories, not the plaintiffs. During the course of the trial Counsel for the plaintiffs conceded^[68] that their clients were not now claiming any rights in the overall design of these pieces of hardware. Their claim was limited to the precise dimensions employed. This is very different to the claim in the pleadings. There was never any doubt that the defendants would have found it easy to design their tools and machinery so as not to use the dimensions employed by PLL. The defendants included or had access to experienced technicians who had worked on or been concerned with the design of the equipment at CV Laboratories and PLL. In the light of the evidence, such a design exercise would have taken a matter of weeks. To maintain until almost the end of the trial a broad claim which the plaintiffs knew or should have known was unjustified is an abuse of process.

(2) The claims relating to Standard Operating and Tests Procedures (SOTPs)

It will be seen from the extract from the statement of claim set out above that among the divers matters included within the definition "the PLL Confidential Information" were "developed and updated SOTPs relating to all stages of the design and manufacture of the [plaintiffs'] lenses". The PLL Confidential Information also included "developed and updated product descriptions, formulae and quality assurance, regulatory and other information (including SOTPs)". On its face, therefore, this pleading asserted that all the SOTPs and the information in them were confidential. In the Schedule of Use, the plaintiffs pleaded as follows:

"Standard Operating and Test Procedures (SOTPs)

72. These SOTPs comprise a complete description of each stage of the OSL manufacturing process in each department, maintained for the purpose of internal process control and regulatory approval. This represents a body of valuable proprietary information which has been compiled as a result of substantial skill and labour.

73. The Plaintiffs contend that the Defendants will have used such information but are not able to at present give particulars of the use made by the Defendants of the Plaintiffs' confidential information, such use being within the knowledge of the Defendants, pending interrogatories, further discovery or cross-examination herein.

74. The Plaintiffs' confidential information consists of the body of information comprised in the documents listed at Annex 6. The individual SOTPs upon which the Plaintiffs particularly rely are as follows."

This is consistent with the wide pleading of confidentiality set out in the statement of claim. The documents listed in Annex 6 as referred to in paragraph 74 of the pleadings included not only the SOTPs but also various charts and forms. These were all called SOTPs for the purposes of the pleading. The individual SOTPs indicated in that paragraph as particularly relied on by the plaintiffs were those which, on the information available to them at the date of the pleading, they felt able to identify as having been used by the defendants. However the prayer for relief covered all the SOTPs.

That this was a proper understanding of the plaintiff's case was confirmed by an event which arose during the cross-examination of Anthony Galley. While he was being cross-examined on the data used in AVCL for insert design, Counsel put to him that he had used a conversion ratio which allowed the power of a dry lens to be related to the power of the swollen hydrated lens. Counsel suggested that this was the same ratio as was used by PLL (a matter which was not, in itself surprising since substantially similar lenses were being made from substantially similar polymer). I asked Counsel^[69] whether the use of this ratio by Mr. Galley was being put forward simply as a 'fingerprint' tending to show that he had been prepared to copy PLL material or whether it was said that the ratio itself was confidential. I was told it was being put forward for both purposes. I then asked where it was referred to in the pleadings because, if it had not been particularised, the defendants would have had no opportunity to meet the allegation of confidentiality. Counsel asked for time to find the relevant passage in the pleadings. After the short adjournment he said^[70] that the ratio was 'referred to' in one of the documents pleaded under paragraph 74 of the Schedule of Use, i.e. in one of the SOTPs. In fact the ratio was not itself referred to in any of the SOTPs but some charts attached to one of them (not included in the court bundle) had been produced by a use of the ratio and therefore, it was suggested, the ratio itself was implicit in the pleadings. I was not happy with the suggestion that the plaintiffs were relying on a piece of confidential information which was not directly referred to in any of the pleaded documents and, for the first time, I began to look at the SOTPs in detail.

It soon became apparent that the suggestion that the contents of the SOTPs are the plaintiffs' confidential information was absurd. The SOTPs contain a record of the totality of what is done in the PLL production facility. They cover the most important to the most trivial matters. Presumably the most important SOTPs are the ones which had been selected and put in three ring files as part of the court papers. They include, by way of example, the following:

SOTP 3: This was concerned with personal health and cleanliness. It stipulates that personnel were required to be "clean, healthy and suitably attired in their work area". It tells them where to wear laboratory coats.

SOTP 67(7): This bears the title "Janitorial Cleaning - All areas". It includes a direction that all employees will be responsible for ensuring that their work areas are clean and tidy at the end of each working day. It lists approved equipment and materials including "Jif" for cleaning sinks, "Ajax Liquid" for cleaning sinks and toilets and "Pledge" as a furniture polish. It requires waste bins to be emptied, telephones to be cleaned, furniture and radiator tops to be dusted, carpets to be vauum cleaned, mirrors to be cleaned, toilet roll holders and soap to be replenished, floors to be swept and windows to be cleaned.

Contents of others are adequately indicated by their titles. They include:

SOTP 9: "Regular Checks on Purified Water".

SOTP 123: "Personnel Training Procedure".

SOTP 269: "Laundering of Protective Clothing".

SOTP 297: "Complaints Procedure for Sales Affiliates".

SOTP 305: "Fire Alarm Test Procedure".

SOTP 308: "Cleaning Blister Trays Using a Vacuum Cleaner

SOTP 312: "Health and Safety Awareness Training Notes (Fire and Emergency Procedure)".

SOTP 313: "Manual Lifting".

SOTP 315: "Use of Personal Protective Equipment".

FORM 11: "Recall Letter".

FORM 20: "Complaint Investigation Form".

FORM 150: "Total Number of Lenses Hydrated Form".

FORM 167: "Record of Janitorial Cleaning - all Areas".

FORM 192: "First Aid Stock Sheet".

FORM 197: "Accident/Incident Investigation Form".

Some, but not all of these had been included in the court files. The pleaded documents included all the standard labels used on the finished products - no doubt millions of which had been distributed to customers. Furthermore it is also apparent that numerous SOTPs simply consisted of instructions on how to operate third parties' standard equipment including printers, Perkin Elmer's Infrared Spectrophotometer, Draeger Pump and Tubes, Roebling Digital Micro Osmometer Model 200, Zygo Interferometer Mark I and many more. It was difficult to see how any of this could be confidential or, for that matter, the property of PLL. I made my scepticism clear to Counsel. The next morning I was told that a mistake had been made. It was said that the SOTPs were being put forward in two ways. First, it was said that the SOTPs as a whole represent a body of valuable information which is maintained for the purposes of the internal process control and regulatory approval. As such the complete set of SOTPs were to be treated as a single confidential item. That case was put forward irrespective of whether the individual SOTPs contain information which was confidential in itself. Secondly it was said that there was a separate claim to confidentiality in relation to the particular SOTPs, some four or five in number, which are referred to explicitly in the Schedule of Use. It was conceded, however, that many of the SOTPs contained trivial or non-confidential information or information which belonged to someone other than the plaintiffs (e.g. Perkins Elmer). It was also said that, in view of this reconsideration of the pleadings, the plaintiffs did not now assert that the conversion ratio was a pleaded item of confidential information.

I was not persuaded by either of these explanations. Putting aside my concerns as to whether a claim to confidential information can be maintained in relation to a collection of information where none of the individual items are alleged to be secret, substantial or owned by the claimant, it is clear that no such claim was or could have been made against the defendants. If the claim to confidentiality was being made in respect of the total package as a single item rather than the individual contents, it would have been necessary to show that the defendants had taken, in substance, the whole package. A 'whole package' claim could not be used to bestow confidentiality on the individual contents when, by themselves, they were not protectable. It has never been suggested that the defendants have taken or used the total bundle of SOTPs. In fact it would have been most unlikely that they could have done so since very many of them are recorded in the plaintiffs' pleadings as having been discontinued. Futhermore, having read and re-read the pleadings, I am quite unable to discern any such 'whole package' plea. The plaintiffs case, particularly as set out in paragraph 12 of the statement of claim, was in the widest possible terms.

I am not impressed with the second argument either. As I have pointed out above the Schedule of Use, as its name suggested, identified the particular items which were both alleged to be confidential information and used by the defendants. It did not cut down on the scope of the confidentiality claims. At the very least, if it was possible for the pleader to misunderstand the scope of his pleadings, as he says he did, it is hardly surprising that others could do so as well.

Some other examples of the unjustified width of the plaintiffs' claims to confidentiality will be mentioned when I come to consider the individual claims of breach below. It is sufficient at this point to say that in my view the plaintiffs' claims under this head are extravagant in the extreme. Numerous claims have been put forward which any reasonable litigant in the plaintiffs' shoes would have realised were untenable. Some of them, as I have indicated above, were absurd. How these claims came to be made became apparent from the evidence of Mr. Fruth;

"MR. JUSTICE LADDIE: Mr. Fruth, the statement that things are confidential - was that your decision or was that somebody else's decision? Were you the person who decided what was or was not confidential?

A. There was certainly some discussion, my Lord, in that regard in that I maybe tended to believe that everything was confidential and our solicitors tempered that to some degree.

Q. You thought it was all confidential and your solicitors reigned you back a bit.

A. Yes."^[71]

I doubt that Mr. Fruth believed that all his claims to confidentiality were justified. Whether he did or not, the widest claims, that is to say the claims which would be most damaging to the defendants, were not only unjustified but were recklessly made. This is not a fault of the lawyers. They apparently tried to inject a note of reality into the plaintiffs' assertions.

(e) The Law

There was little dispute between the parties as to the relevant law. It was not suggested that this is a case where any contract has tried to impose an obligation of confidence in relation to material which, at common law, the recipient would be free to use or disclose. What was or was not confidential therefore has to be tested by reference to the criteria set out in cases such as Coco v. A.N. Clark Engineers [1969] R.P.C. 41. As Megarry J. put it in that case:

"In my judgment, three elements are normally required if, apart from contract a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, MR in the Saltman case on page 215, must "have the necessary quality of confidence about it." Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party."

Nothing turns on the last of these. This being a case which is advanced primarily as one arising out of contract, it was not suggested that the plaintiffs needed to prove damage for the purpose of establishing the defendant's liability. The first two, on the other hand, are central to the proceedings. They are criteria which frequently are interrelated. Where a piece of technology is regarded by those in the trade as common currency, then the reasonable man standing in the shoes of the recipient is unlikely to think that it is being transmitted to him in circumstances importing an obligation of confidence. If technology was treated by the parties as if it was common knowledge, it is likely to be reasonable for them to assume that it is being treated in the same way when it is passed on between them.

However an issue which has raised particular difficulties here is the identification of those items of technology, if any, which the defendants were entitled to use as part of their acquired skill and expertise. The law on this issue was the subject of detailed consideration in Faccenda Chicken Ltd v. Fowler [1987] Ch 117 which case has recently been reviewed by the Court of Appeal in Lancashire Fires Ltd v. SA Lyons & Co Ltd [1996] FSR 629. The former suggests that it is necessary to distinguish between three categories of information namely: information (1) which is so trivial or easily accessible from public sources that no-one would regard it as confidential; (2) which is learned during the course of his employment and, once learned, necessarily remains in the employee's head and becomes part of his skill and knowledge and (3) which remains confidential to his employer. It is said that the employer cannot restrain use of category (1) information whether during the period of employment or afterwards. After the employment has come to an end, information in category (2) can only be protected indirectly by means of a suitably drafted restrictive covenant, that is to say a restrictive covenant which is not in unreasonable restraint of trade. On the other hand information in category (3) can be protected after the employee has left employment even without a restrictive covenant.

I think that it sometimes may be a bit misleading to think in terms of confidence or quasi-confidence when considering an employee's skill and expertise. An employee is entitled to deploy his skill and expertise for any employer. It may be a skill and expertise which is held by many others so that, as a practical matter, it is readily available to all competitors in the trade or he may be one of a select band. When an employee works for his employer he is bound by an implied obligation of good faith. Generally, he is expected to work for his employer not for his employer's competitors. He is expected not to put his skills at the service of one person while his salary is being paid by another. This has nothing to do with the confidentiality of his skills and expertise. Similarly when he learns new things during his employment which become part of his skills and expertise, the employer can insist that, while he is employed, he uses those things only for the purpose of his employment. Whether or not those new things are confidential, in the Coco v. Clark sense, is largely irrelevant to the restraint on his ability to use it to his employer's detriment while he is still employed by him. The significance of this is that there is risk of slipping into thinking that what an employee can be restrained from using while in employment is likely to be secret when, in truth, that restraint has little to do with secrecy but a lot to do with the employee's obligation to act in the interests of his employer. Once one slips into thinking that because a piece of information cannot be disclosed to a competitor during employment, therefore it is secret, it is but a little step to assuming that it is secret for the purposes of the law of confidence.

For this reason I have some difficulty with Faccenda category (1). Faccenda says that the employee is free to disclose even to his master's competitor all information which is trivial or which is easily accessible from public sources. I do not think that necessarily is true. Indeed, Hivac Ltd. v. Park Royal Scientific Instruments Ltd [1946] Ch 169 indicates that a restraint on an employee, while employed, from assisting a competitor has nothing to do with whether that assistance involves disclosure of confidential information. Once again, what an employee can or cannot make available to a competitor during the period of his employment has little to do with the law of confidence.

In the end, it seems to me that the law as expounded in Faccenda and reviewed by the Court of Appeal in Lancashire Fires comes down to this. An employer, like anyone else, is entitled (all other usual defences aside) to restrain unauthorised disclosure or use of information which, in the Coco v. Clark sense, is confidential. On the other hand, for public policy reasons, an employee is entitled to use and put at the disposal of new employers all his acquired skill and knowledge. That is so, no matter where he acquired that skill and knowledge and whether it is secret or was so at the time he acquired it. Where the employer's right to restrain misuse of his confidential information collides with the public policy, it is the latter which prevails. The critical question is how to distinguish information which can be treated as an employee's acquired skill and knowledge from that which is not. As the Court of Appeal pointed out in Lancashire Fires, that may be a difficult borderline to detect and where it lies will depend on the particular facts of the case.

In Printers & Finishers Ltd v Holloway [1965] 1 WLR 1, Cross J indicated how the court should try to decide whether particular information falls within the scope of what an ex-employee is free to use. He said:

"The mere fact that the confidential information is not embodied in a document but is carried away by the employee in his head is not, of course, of itself a reason against the granting of an injunction to prevent its use or disclosure by him. If the information in question can fairly be regarded as a separate part of the employee's stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with, then the court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an injunction."


 


Section 4 - Breach of Confidence. The individual claims

I will deal with each of the heads of breach of confidence in the order in which they were dealt with by the plaintiffs in their closing submissions.

(1) Lens Designs

The claims made in relation to the lens designs were very widely pleaded. Paragraph 10 of the Statement of Claim alleged that OSI had

"... provided detailed lens designs and/or specifications (including dimensions and formulations) to PLL ("the Lens Designs") for the soft contact lenses".

Paragraph 11 pleaded that the above-defined Lens Designs were provided and communicated to PLL in confidence and remained confidential to OSI. Thereafter OSI tested and approved the Lens Designs at the prototype stage and it said that for the avoidance of doubt;

"... all such tests, test results and approvals are included within the definition of Lens Designs and the same were and remained the trade secrets and/or confidential information and/or proprietary information of OSI."

Whatever these tests, test results and approvals were was not made clear. They would include tests to measure the optic power of the lenses. However every lens is sold in a vial or blister pack which states what its optic power is. This could not be confidential. In any event, during the trial no attempt was made to rely on any tests, test results or approvals as confidential nor was any related allegation of misuse made against the defendants. Paragraph 12 alleged that PLL developed detailed lens specifications for each prescription of each Lens Design referred to in paragraphs 10 and 11 of the statement of claim. Within the very wide allegations contained in paragraph 12 of that pleading it was also alleged that PLL had developed and/or used computer systems, programs, algorithms and software including design software and, in particular, the software used to generate the design of the finished lens, steel insert and the mould specifications. It was also alleged that PLL made

"...divers improvements, inventions, research and development projects, drawings, models ... relating to the ... design... of contact lenses"

All of these were referred to as "PLL Confidential Information". Paragraph 14 of the statement claim asserted that all of this material was confidential. Once again, no case of this width was eventually put to the defendants or maintained in the submissions of the plaintiffs. In the end only three heads of confidential information were put forward: (1) the designs of the soft lenses themselves, (2) the contents of the plaintiffs' Lens Design Booklet which is said to contain a complete set of all the specifications for each lens manufactured by PLL and (3) a Lens Design Program. It is convenient to take (1) and (2) together.

(a) The lens designs and the Lens Design Booklet

The nub of the plaintiffs' case on confidentiality is that each of the designs for each of their lenses is confidential as is the collection of such designs contained in the Lens Design Booklet. As far as the latter is concerned, the case was stated as follows:

"The Plaintiffs' Lens Design Booklet contains a complete set of all the specifications for each lens manufactured by the First Plaintiff. It constitutes a valuable collection of information which is confidential to the Plaintiffs and includes information which is not available in the public domain and could not be obtained by sectioning a lens. The information in the Lens Design Booklet comprises the following dimensions for all lenses manufactured by the first Plaintiff:- wet power, base curve, diameter, centre thickness, junction thickness, peripheral thickness, edge thickness, edge lift, optic radius, optic displacement, optic zone, peripheral radius, peripheral displacement, peripheral diameter, ramp radius, ramp displacement, ramp angle, ramp length, base curve radius, base curve diameter, base curve displacement, internal sag and external sag."

Tens or hundreds of thousands of the plaintiffs' lenses had been put on the market over the years and, at the trial, no attempt was made to justify the claim to confidentiality in relation to most of these dimensions for each of those lenses. However the picture painted by Mr. Fruth was that the majority of these features were confidential. Having referred to all the features set out in the last quoted passage he said in his witness statement;

"While it is true that certain basic information surrounding the lens is available to practitioners, the raft of detailed information referred to above is not. In my experience of the contact lens industry, the information which is available to the prescribing opticians would be of a general nature to enable patients to be fitted with lenses to match the shape and properties of their eyes. For example, base curve, diameter, centre thickness, edge thickness, generic material type (e.g. HEMA), refractive index of that material and the water content of a particular lens design would all be available to the optician. It can be seen that this is a small subset of the body of information I refer to above."

He said that the detailed designs were not readily accessible to competitors either by inspection or sectioning^[72]. As a result of this, much time was spent on discussing what dimensions were readily available to the trade by sectioning and measuring the lenses on the market. Mr. Fruth maintained his position that sectioning was of little value. I reject his evidence. It became apparent that sectioning was a technique which was used extensively inside PLL to measure the critical dimensions of their own and competitor's products and Mr. Fruth knew it. Anyone in the art would know that most dimensions were easily measurable from the commercially available products. Furthermore, contrary to the impression given by Mr. Fruth in his witness statements and during his cross-examination, the plaintiffs had not made any attempt to treat these dimensions as secret. The advertising video put out by OSI with Mr. Fruth's voice-over starts with the following statement:

"Eye care practitioners and researchers long ago settled on the basic parameters that worked best in soft contact lens designs - the range of base curves, cord diameters and centre thickness - and most manufacturers can produce the fundamental curves required in a workable contact lens. But we know from rigid lens experience that the ability to design a high quality edge and then turn it out consistently is the hallmark of an excellent laboratory. At Ocular Sciences we believe that peripheral geometry and edge design continue to be the most important but least understood factors in overall lens performance. That is why edge design is priority number 1 here."

A number of advertising brochures distributed by OSI were put to Mr. Fruth during cross-examination. They give detailed description of many of the features, including dimensions, of the design of individual lenses and illustrate clearly the design of the edges which Mr. Fruth asserts in the video are the vital point of distinction between OSI/PLL's lenses and those of others in the trade. The plaintiffs sought to rely on the fact that a very small number of the dimensions given in the brochures were inaccurate. This does not alter the position. It was not suggested that any such inaccuracies were incorporated in the brochures for the purpose of hiding the true dimensions. Nor was it suggested that anyone would have thought that the inclusion, in a small number of cases, of inaccurate figures indicated that the true figures were confidential. The impact of this material was to indicate that the dimensions were not regarded as secret. Small errors in the figures printed do not diminish that impact. At the end of the evidence I was left with no clear idea of which individual shapes and dimensions in individual lenses, if any, were alleged to be confidential.

My view that the designs of the individual lenses were not confidential and were not treated as confidential is also consistent with the terms of the PSA. That contemplates and provides that at some time in the future AVCL would be making for itself and selling the covered products which had been supplied by PLL under the PSA. That means the same lenses to the same designs. There is nothing in the agreement which suggests that either party considered such designs to be confidential or that there would be anything wrong in AVCL copying and selling such designs for itself. In my view this is not because the PSA contains an implied licence to make identical lenses in certain circumstances (as Mr. Waugh for the plaintiffs appeared to suggest) but because it reflected the reasonable view of the parties that those designs were not in any way secret.

However the plaintiffs got away from relying on the detailed designs of individual lenses by putting forward a case that it was the compendium of dimensions in the Lens Design Booklet as a whole which was confidential. For example it was said that, on the basis that for each lens design there are 32 lenses, even to obtain a small amount of the information contained in the Lens Design Booklet would require a lens manufacturer to section in the region of 1,000 lenses. Undoubtedly this would take time and effort.

I have great doubts as to whether it is right that a claim to confidentiality can be maintained in a mere mechanical collection of data which is in the public domain. If, as I think was the case, the individual design features of individual lenses were and are readily available to those in the art or were never treated as confidential and, furthermore, were never treated as confidential by OSI and PLL, I cannot see how a claim to confidentiality can be maintained in a complete list of such features in a number of lenses, even if the latter number is large. The plaintiffs suggested that their position was supported by the well known speech of Lord Greene MR in Saltman Engineering Co Limited v Campbell Engineering Co Limited (1948) 65 RPC 203 at 215;

"The information, to be confidential must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process."

Those views were repeated and reinforced by Megarry J. in Coco v A. N. Clark (Engineers) Limited [1969] RPC 41 at 47 ;

"First, the information must be of a confidential nature. As Lord Greene said in the Saltman case at page 215, "something which is public property and public knowledge" cannot per se provide any foundation for proceedings for breach of confidence. However confidential the circumstances of communication, there can be no breach of confidence in revealing to others something which is already common knowledge. But this must not be taken too far. Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts. Indeed, often the more striking the novelty, the more commonplace its components. Mr Mowbray demurs to the concept that some degree of originality is requisite. But whether it is described as originality or novelty or ingenuity or otherwise, I think there must be some product of the human brain which suffices to confer a confidential nature upon the information: and, expressed in those terms, I think that Mr Mowbray accepts the concept."

In my view the emphasis in Saltman should be on the words "it is perfectly possible" and in Coco on the word "may". It is a commonplace that valuable and novel ideas may be produced by the judicious selection and combination of a number of items which, separately, are in the public domain. No one would suggest that such ideas are incapable of being the subject of an obligation of confidence. But, to adopt Megarry J's words, there must be some product of the skill of the human brain. A mere non-selective list of publicly available information should not be treated as confidential even if putting it together involves some time and effort. No relevant skill is employed. Were this not the case, it would be possible for individual competitors to copy or make use of the individual items of information but they could not get together to make use of all or most of them.

For this reason, I would have held that there was no confidentiality in the Lens Design Booklet. However, it appears that the Galleys were prepared to accept that such confidentiality existed. I will proceed on that basis for the purpose of this judgment.

(b) The Lens Design Program

The plaintiffs' Lens Design Program is a computer program written by Anthony Galley which enables a manufacturer, by inputting lens design information, to generate (1) a complete range of finished (wet) lens specifications, (2) a complete range of dry lens specifications; and (3) a complete set of specifications required for the manufacture of the insert components used to make the polypropylene moulds in which the lenses are cast. There is no doubt that this is confidential and was treated as such by the plaintiffs. However, it should be borne in mind that all that was claimed to be confidential was the program itself, not the underlying methods of calculation. This was accepted by Mr. Fruth^[73].

(c) Allegations of misuse by the defendants

The plaintiffs claim that the defendants have breached their obligations of confidence by establishing AVCL as a manufacturer of soft contact lenses to precisely the same designs as the plaintiffs' designs. That broad allegation was not contested. The defendants did try to imitate the covered products which had been supplied to them under the PSA. The plaintiffs say that in developing their product line the defendants must have used the Lens Design Booklet and the Lens Design Program. In the end, I did not understand the plaintiffs to pursue the first of these allegations by itself. There was no evidence that the defendants had taken the Lens Design Booklet or had used it in designing their own lenses. However it was said that the Lens Design Booklet was merely the result of printing out the specifications for the PLL lenses using the Lens Design Program and the raw data contained in the database used with it and this, it was said, had been used by the defendants.

There was no dispute that the defendants had a copy of the PLL Lens Design Program. This had been written by Anthony Galley and the defendants had a copy of it when the parties finally parted company in April 1994. It had been copied onto Anthony Galley's computer. The Lens Design Program allows the manufacturer to input or work out the design for a single wet lens and then to iterate from that design to make all the other lenses in the range. From the wet lens designs, the Program will calculate the design of the dry lens from which the wet lens is produced. Finally, from the dry lens design it will work out the shape and dimensions of the metal inserts for making the polypropylene moulds used to cast the dry lenses.

The defendants' case was as follows. Mr. Galley had intended to use his copy of the Lens Design Program for the purpose of specifying the lenses to be made by AVCL. In fact it was used for specifying the designs for the inserts for the first 6 lenses which AVCL made after the 1994 split. But when it became clear that there would be a dispute of the legitimacy of using the Program, he wrote from scratch a new program in the form of a spreadsheet program. This was used for all subsequent lens and insert designs. In his evidence Mr. Galley describes the essentially straightforward calculations which he used to put together the spreadsheet. There was no criticism of these calculations or any suggestion that Anthony Galley was incapable of working them out for himself. Indeed at an early stage in the trial the plaintiffs accepted that the program was not copied as such for the creation of the spreadsheet^[74]. Those of the plaintiffs' witnesses who had examined the spreadsheet routines agreed that none of the routines used in the spreadsheet were copies of those used in the Lens Design Program. What they allege is that, over and above direct use of the program in creating the first 6 sets of inserts, the spreadsheet was produced by use of or by reference to the data used in the program. It was said that the program was used to 'nudge' Mr. Galley in the right direction at various points in his creation of the designs produced from the spreadsheet.

In support of their case, the plaintiffs put in extensive and detailed evidence, particularly from a Dr. Sammons, which analysed the dimensions of the various lenses produced by the defendants and compared them with the equivalent dimensions in the plaintiffs' lenses. Dr. Sammons examined the similarities. His evidence that they suggested that the Lens Design Program or the Lens Design Booklet had been made use of in designing the defendants' range of lenses was subject to detailed cross examination. In the end his evidence came to this. First he accepted that in important respects the design strategy employed by AVCL in the spreadsheet was different to that employed by PLL. Thus AVCL fixed some parameters and allowed others to "float" - i.e. be calculated in accordance with the iteration process, whereas PLL fixed different parameters and allowed different parameters to float. Of course the end result was a range of lenses which were interchangeable with the plaintiffs' range but, as Professor Efron explained and I accept, this would have been likely to be the case where competitors were trying to make similar lenses. Furthermore there were points at which the designer of a range of lenses would have to decide to change one of the parameters. For example simple iteration might have resulted in the centre thickness getting too big. At some point the designer will have to decide to change one of the other dimensions so as to allow the centre thickness to be reduced. This point was referred to during the trial as a "decision point". The location of the decision points in the defendants' and plaintiffs' designs were examined in detail during cross-examination. It became quite clear, and was accepted by Dr. Sammons, that in most cases the decision points were different in the parties' respective ranges. This was consistent with Anthony Galley's evidence that he designed his spreadsheet and the range of lenses from scratch. The way in which the plaintiffs tried to get round this was to suggest that even if the decision points were not the same and the lens design strategy was not the same, the plaintiffs' decision points might have been used to "nudge" the defendants into adopting a decision point at a similar, but not identical, point in their range of lenses. For example, if it was decided to change the centre thickness of one of the ranges of the plaintiffs' lenses when it reached -4 dioptres, this might have been the reason why the defendants changed their centre thickness at -3.75 dioptres. Mr. Fruth suggested that the fact that the defendants used different design choices in its spreadsheet was an attempt by the defendants to "camouflage" what they were up to, which was copying the plaintiffs' program or data, and that the dimensions in some of the defendants' lenses had been changed slightly "to make them look different" ^[75]. This allegation of camouflage and deliberate deceit was adopted by counsel in his closing speech. In my view it is completely groundless.

The plaintiffs have failed to discharge the onus on them to show that, apart from the use made of it in preparing the first 6 sets of inserts, the defendants copied any part of the Lens Design Program or its underlying data. But more than that, I am satisfied that Mr. Anthony Galley had the expertise to create his spreadsheet from scratch and I have no doubt that he did so. Designing a complete range of lenses is a matter which all manufacturers in this art do. The Lens Design Program and its underlying data was but one example of how to do this. Mr. Anthony Galley had no need to "camouflage" use of the plaintiffs' Lens Design Program because he didn't need to use that program at all, whether camouflaged or not. In coming to this conclusion I have born in mind Mr. Galley's acceptance that, during the course of preparing the AVCL spreadsheet he had before him a routine called RAMP.EFP which had been printed out from the PLL Lens Design Program. This had originally been written by him and he agrees that he must have looked at it. He said he could not remember looking at it and that it has nothing to do with the work he did in preparing the spreadsheet. I accept his evidence on this issue. There is no material which leads me to conclude that it was ever used to help Mr. Galley design the spreadsheet or for any other purpose.

Before considering the question of the first 6 insert designs, there are a number of additional points which were raised which appeared to relate, directly or indirectly to Lens Design Program claim.

First it was said that even if Mr. Galley did not use the Lens Design Program directly to create his spreadsheet, he nevertheless must have looked at the Lens Design Program at some time or other. This was put to Mr. Galley and he said that it was possible that he had done so. However it was clear from the evidence that he did not do this for the purpose of designing his spreadsheet which, as I have said, he designed from scratch. At most it seems that Mr. Galley may have looked at the Lens Design Program to reassure himself that what he had done was correct. Even if that was an illicit use of the Program, it seems to me that nothing flowed from it. It was not suggested that the AVCL spreadsheet would have been any different had the Program not been looked at. In my view no substantial use was made of the Lens Design Program in this respect.

Secondly the plaintiffs said that, within the Lens Design Program a swell factor was used by means of which it was possible to back calculate from the design of the hydrated lens to the design of the dry lens. The swell factors used by AVCL were the same as those used by PLL. One will look in vain for any reference to swell factors in the plaintiffs' pleadings or, indeed, in any of their witness statements. The necessity of using swell factors is discussed in Dr. Sammons' report. Once again, if this was a point which the plaintiffs wished to rely on, it was incumbent on them to pick it out from the mass of generalities set out in the statement of claim. However, in my view even had it been raised properly in the case, it would have failed.

One of the features of the hydrogels used by the plaintiffs, defendants and many others in this industry is that they swell by a predictable amount. There was no suggestion that that was in any way secret. In fact the use of a swell factor can be seen in the lens design program written for his father by Mr. Anthony Galley when he was 14 or 15. The point, if there was one, was that the particular swell factor would depend upon the particular water absorption of the polymer being used. A 50% hydrogel would have swollen less than a 55% hydrogel. The plaintiffs suggested during the evidence that because the polymer did not swell uniformly in all directions, a single swell factor was not derivable from the dry lenses. They had to say this because it became apparent during cross-examination of Mr. Fruth that OSI had offered dry lenses generally to opticians so that they could see how they swelled. In my view there was nothing in this point whatsoever. It became clear that the swell factor was not a precise figure but was a rough working figure which enabled the lens designer to calculate the dry lens dimensions sufficiently closely to enable him to produce metal inserts which would then need to be validated. If the swell factor was significantly out, validation would show that and the necessary correction could be carried out. It appears that a workable swell factor could have been derived with little difficulty from the dry lenses distributed by OSI. Furthermore, this is just the type of information which an employee would acquire as part of his skill and expertise. Just as a baker will learn that dough made from a particular flour and water with a particular yeast will swell by a certain amount in 3 hours, so swell factors for commercially available lenses are likely to become an indelible part of the skill and expertise of the employee. An employee of ordinary honesty and intelligence would know that there will be little difficulty in working out a satisfactory swell factor for a particular hydrogel. I do not think he would regard these swell factors as being information of his former employer which he was not free to use.

Thirdly the plaintiffs said that, within the Lens Design Program a shrinkage factor was used by means of which it was possible to back calculate from the design of the polypropylene moulds to the design of the metal inserts. This was attributable to the shrinkage of the polypropylene during moulding. The shrinkage factor in both the PLL and AVCL calculations is the same. Once again there is no mention of this piece of information being confidential in the plaintiffs' pleadings. For the reasons set out above in relation to swell factors, this is not a proper way of raising this issue, if it is to be raised. In any event, this point is no better than the swell factor point. It is not suggested that shrinkage is unknown or that the general concept of putting a shrinkage factor into the calculation for the inserts is confidential. Reliance is only put on the number used. The plaintiffs accept that this is not a difficult number to measure. Again, in my view, this is just the sort of basic information which an ordinary honest and intelligent worker in this field would regard as part of his skill and expertise rather than as the secret information of his employer.

Fourthly, the plaintiffs said that both the plaintiffs and defendants used what was called an "add factor" to work out the diameter of the female metal insert from the diameter of the male metal insert. This like the two points before was not pleaded. For what it is worth, it is also untenable. When the two parts of the polypropylene mould fit together, the male must be a tight fit inside the female. If it is loose, the male will fall out and a thin layer of polymer will squeeze out through the gap which will form what is called 'flash' around the edge of the lens when it cures. This is just what the Galley patent is designed to avoid. On the other hand if the male diameter is too large, it will not fit in at all. Therefore the outside diameter of the finished male mould has to be slightly smaller than the inside diameter of the female mould. As Mr. Anthony Galley said, even if you did not remember the degree of fit you can only get this figure wrong once. The second time round you would get it right. In my mind the fit between these two parts is just the sort of thing that an honest and intelligent worker would consider he was free to use without restraint by his former employer. He would be right.

Finally, there is the issue of the first six set of inserts produced by the defendants by use of the plaintiffs' Lens Design Program and the use of those inserts in manufacture. I have come to the conclusion that, save and to the extent that the defendants were entitled by contract to use these designs by virtue of the pre-September, 1992 argument, they were not entitled to make these inserts by use of the program nor were they entitled to use the inserts so made. In so doing, they breached the contractual obligations of confidence owed to the plaintiffs. The consequences of this I will consider when I deal with the question of relief.

(2) Tooling for insert manufacture

The Polishing machine and associated tooling

The way in which these items were added to the case is illuminating. These were included in the broad wording in paragraph 12 of the statement of claim. In the Schedule of Use, these items were all referred to together under the generic rubric "Tooling for Insert Manufacture". In relation to these, the plaintiffs said:

"Having regard to the criticality of the designs and dimensions which define the steel insert and insert components, the skill and labour involved in determining the aforesaid designs and dimensions, the consequent importance of accurate machining of the inserts, and the skill and labour involved in the production of tooling for the inserts and insert components, all information relating to the tooling for the production of the steel inserts and insert components is confidential. Accordingly, drawings embodying such information are also confidential."

The listed equipment consisted of the polishing machine for male inserts, cast iron collets, polishing cups, inspection holders, brass lapping holders, brass sleeves, and male optic blanks. Collets are perfectly standard pieces of workshop equipment used for holding an item rather like a chuck on an electric drill does. There was nothing special about the collets used by PLL. They just happened to be made to a particular size and dimensions. As Mr. Kenney, a witness called on behalf of the plaintiffs conceded, the plaintiffs' collets are conventional. He agreed that there is nothing out of the perfectly ordinary workshop practice about them^[76]. A claim to the general design of the PLL collets was absurd and at the trial was not pressed. As far as the polishing cup, inspection holders, brass lapping holders and brass sleeves are concerned, no evidence was given on behalf of the plaintiffs in relation to them. The polishing machine is used to give a smooth surface to the metal inserts made by lathing (i.e. cutting on a lathe) a steel blank. The polishing machine used by PLL was copied by Mr. Bevis from the one used by CooperVision and shown in the CV video. This had been designed for CooperVision and consisted of a modification of standard polishing machines readily available on the market. During the trial it was not suggested that there was anything confidential about the general design of this piece of equipment and, belatedly, the plaintiffs accepted that their case resided in the detailed dimensions of the parts of the machine rather than in the overall design, which was not theirs anyway. Once again, one must assume that the broad pleading that all information relating to this piece of equipment was confidential could be traced back to Mr. Fruth even though he admitted under cross-examination that he knew nothing about these machines^[77]. Once again the pleadings relating to these pieces of equipment were recklessly wide.

In the end the case which the defendants had to meet was that the detailed dimensions of these pieces of equipment were confidential and that they had copied them by copying from PLL drawings. In the case of the polishing machine, the PLL drawing was created on Mr. Geoffrey Galley's instructions for the purpose of facilitating AVCL's manufacture of their polishing machine.

I believe that it was conceded that the various dimensions of the parts for, say, the polishing machine were not in the public domain. Nor could they be calculated by reverse engineering. Even if a finished insert was available for inspection and analysis by a third party it would not be possible to say what were the sizes of the parts of the machine used for polishing it. On the other hand, once the general principles and design of the machine was known and available, the precise dimensions of all the parts used to make it were essentially arbitrary. Certainly the parts had to fit together and to that extent they were dependent on each other, but other than in that respect they were a matter of free choice. This may be explained by way of a simple example. A manufacturer wishes to make a hammer. He decides what size head it has. The head has to have a hole in the centre through which the top of the handle fits. The fit must be close. Within very wide limits the manufacturer can choose the overall width of the hammer head and the size of the hole in it. The size of the end of the handle will be determined by the size of the hole. All of these dimensions are, to most intents and purposes, arbitrary. A hundred manufacturers asked to design their own hammers independently are likely to come up with different, equally arbitrary and equally effective dimensions. Technically the differences between these dimensions are trivial.

The dimensions which the plaintiffs rely on in relation to the polishing machine are of this sort. There was no dispute that any competent machine designer would have been able to arrive at his own design with his own dimensions with consummate ease. This applied with particular force to Mr. Bevis. He had built a male insert polishing machine for CV Labs when he had started the Insert Department there. When PLL was being set up, he designed essentially the same machine for them. His evidence was that he could design a polishing machine from memory. This was not challenged. Had he been asked to build a polishing machine for AVCL without access to the PLL drawings he would have had no difficulty doing so. But the fact that equally good equipment made to the same basic design could have been produced by the defendants or any number of other companies in this industry does not mean that the dimensions employed by PLL are unprotectable under the law of confidence. Those dimensions are not in the public domain and they have at least some value in that they represent a set of dimensions which, if followed, will produce a workable polishing machine. The fact, as I believe it to be, that alternative workable sets of dimensions could be arrived at by numerous other designers without any difficulty does not mean that they fall below the level of value which attracts protection by the law. They may be dismissed by those in the art as unexceptional and run of the mill but they are not 'trivial' in the sense used by Megarry J. in Coco. It follows that to copy a document containing all those dimensions, such as a drawing, as the defendants did is, absent some other defence, a breach of confidence.

(3) Sundry other pieces of equipment.

The plaintiffs also raised claims in relation to the Male optical inserts, Female optical inserts, Male optic sleeve, Female optic sleeve, Male plug, Female plug, Male plug sleeve, Female plug sleeve, Female insert slug, Steel blanks, Bolsters, Mould degating/pre-assembly machine, Automatic filling machine, Depetalling machine, Demoulding machines, tinting jigs and Tooling for packaging. In relation to all of these the same criticisms of the pleadings apply. Nearly all of them were copied by PLL from CV Labs equipment. In the end, in relation to all of them, the plaintiffs restricted their claims to the dimensions of the particular pieces of equipment. For the same reasons as I have given in the last preceding paragraph, the interacting set of detailed dimensions for each of these items is a piece of information which the plaintiffs are entitled to have treated as confidential. Most of those pieces of equipment were copied exactly by the defendants. Insofar as they did so and in the absence of any other defence, they breached confidence. In relation to all the equipment there was extensive evidence that the designs were technically simple. The evidence of Mr. Morland was particularly illuminating on this issue. Further, the evidence was that this was, at least in part, because PLL was set up on a very limited budget. There was no desire to set it up using sophisticated designs and, as Mr. Morland explained, PLL did not have the money to engage in research and development. The equipment PLL installed was simple.

(4) Operating procedures (SOTPs)

(a) Master Formulae

Before considering the plaintiffs' claims in relation to the formulations for the polymers they use, it will be useful to say a little more about the nature of those polymers. The hydrogel polymers used to make the plaintiffs' soft contact lenses are of the polymacon and methafilcon type. They are made by adding together three or four components; one or two monomers, a cross-linking agent to help join the monomers together and an initiator which, as its name implies, is instrumental in getting the curing reaction to proceed. The overwhelming bulk of the ingredients consist of the monomer. As mentioned already, these are commonly used polymers in the soft contact lens industry. Polymacon polymers were used in CV Labs. One of the chemists employed there to work on and with polymacon was Mr. Atkinson. Polymacon was invented and first used for the manufacture of contact lenses by Otto Wichterle, a Czechoslovak chemist, in about 1961. Mr. Wichterle had a number of patents to his name, including at least one for the use of his polymers for making contact lenses by a spin casting method. There are numerous companies using this polymer in the industry. Dr. Sammons, one of the plaintiffs' expert witnesses agreed that this was the commonest polymer used in the industry and had been in use for 20 years^[78]. Different formulations absorb different quantities of water. Methafilcon is also a common material with a British Standard (BS 7208 : Pt 2: 1991) classification and a United States Adopted Name (USAN). Methafilcon is made from a HEMA monomer mixture with another acidic monomer added to it in minor portions. It was invented in about 1975. That invention was ascribed to one Paul Kirk who appears at that time to have been employed by or associated with GVUK, Mr. Geoffrey Galley's company which his son worked for when still a teenager. In any event Mr. Kirk's patent was taken out in GVUK's name^[79]. The patent gives general indications of the ranges of cross-linker and monomers which make suitable polymers for use in contact lens manufacture. One of the team of chemists who worked on and significantly contributed to the development of these polymers and the contents of the Kirk patent at GVUK was Mr. Atkinson.

Mr. Fruth seemed to suggest that the particular polymer formulations used by PLL were in some way special. However his evidence in relation to this topic carried little weight. He clearly was not a chemist nor did he profess to have any relevant expertise. He could not tell whether small percentage differences between the ingredient content of different polymers were significant or not^[80]. In my view there was no credible evidence to support any such suggestion. The polymer mixes used by the plaintiffs were in no sense unusual and they exhibited no special or unusual characteristics. In fact the way in which the plaintiffs came to their polymer formulations was illuminating. When the plaintiffs wanted to get into the market, it was desirable for them to have FDA approval which would allow them to sell in the United States. To do that, they could either work up their own processes and polymers, in which case they would need to supply clinical trial evidence demonstrating such matters as lack of toxicity, or they could try to show that their product was, for all practical purposes, indistinguishable from another manufacturer's product which already had the necessary approval. If the latter course was adopted and the FDA accepted the assertion of close similarity, then no clinical trials would be necessary. PLL got on the market by asserting that its products were substantially indistinguishable from CooperVision's. They carried out no clinical trials. It is clear that the polymacon formulation used by CooperVision was very similar to that used by PLL. Mr. Fruth's attitude to the formulations of these common polymers at the time he was setting up PLL was demonstrated by a memorandum he wrote to Mr. Geoffrey Galley in which he set out in detail the polymer formulations used by CooperVision and in which he said "The attached is info. that is not really proprietary in my mind and yet would help us to a supplement filing to show equivalency"^[81] (his emphasis). In other words the details of the CooperVision formulations were not secret and would help PLL obtain FDA approval for their own production process on the basis of equivalency. This attitude is not surprising. The bundle of documents available in court shows that in January, 1980, Mr. Atkinson visited another contact lens manufacturer, International Lens Corporation in Trenton, New Jersey, and was there shown that company's polymer formulation which was, again, virtually indistinguishable from one of the formulations subsequently used by PLL and put forward as secret in these proceedings. This is also consistent with the views expressed by Mr. Fruth in 1991. At that time, when proposing a merger between his company and CooperVision, he expressed the view that the ingredient for success was up to the minute manufacturing technology (i.e. the machinery and manufacturing process). His views in relation to polymers were stated as follows;

"The contact lens industry is not a research and development driven business. The original polymers of the late 1960s and early 1970s are still the polymers of today."^[82]

This was put to Mr. Fruth in cross-examination;

"Q. ... The statement in relation to polymers is true, is it not, that is to say the polymers in use when this document was written are the same polymers as had been going around in the industry for a long time?

A. That is correct

Q. And that goes as much for Methafilcon as it goes for Polymacon; correct?

A. That is correct.

Q. I suggest to you that it is well within the competence of any skilled polymer chemist with experience of contact lens industry to decide upon his own formulations without having to copy yours. Would you accept that?

A. Yes.^[83]"

Similarly Mr. Atkinson gave the following evidence:

"MR. WAUGH: ... You say: "The methafilcon formulation which I used was the same as that which had been used by PLL. As I have previously stated this was itself a modification of the formula originally provided by Mr. D. Ewell of Kontour." If formula A, as we saw, had the same methacrylic acid and crosslinking agent in fact that was not followed. Formula E was a significantly different formulation to that of Mr. Ewell or Mr. Froix or whoever, whatever formula A was.

A. That is elementary chemistry. Formula A contains 2.1% methacrylic acid and had a water content 58. You needed a water content of 53. It is elementary stuff to jiggle with the methacrylic acid to get the composition right.

Q. As an empirical exercise that is right, is it?

A. Yes."

and

"A. If you are skilled in the art and you want to make a water content, mid or a high water content, lens of any given number based on a HEMA and MA system undertaking that work, according to the teaching of this patent, is elementary ."^[84]

Notwithstanding this, the plaintiffs may be able to succeed in relation to the specific formulations which they have adopted. They say that their particular formulations are confidential and have been used by the defendants.

The formulations the plaintiffs rely on are not precise. For the purpose of obtaining FDA approval for sale in the United States of America, they had to disclose what the blend of ingredients for their polymers is. These are the master formulae on which they rely. They are set out in Mr. Fruth's Confidential Statement. They show that it is not a precise formulation which is suitable for use in making PLL-type lenses but a range of formulations. Thus there is a permissible range of each of the ingredients in their master formulae. For example in paragraph 77 of his statement, Mr. Fruth sets out the master formula for one of the PLL polymers. One of the ingredients, which I will refer to as "X", can be present at 1+/- 0.6 weight %. In other words the polymer will be satisfactory if the ingredient X is present at a weight % between 0.4 and 1.6. The 'target' percentage was 0.8% from April 1994 and 0.5% before then. As I understand it, it is not in dispute that the defendants now use polymers within the specified ranges and to the targets set. In fact one of their polymers originally had a different content of one of the ingredients but this was changed when a customer, Lombart, asked for a specification which matched the PLL one, apparently to ensure compliance with the FDA approval which had been given to the PLL lenses (just as Mr. Fruth had originally wanted to get into the market by equivalency to CooperVision product).

The major evidence on this issue came from the defendants. Mr. Atkinson was prepared to accept that formulations were generally kept secret in the industry. In support of their case, the plaintiffs relied on the following piece of cross-examination;

"Q. I want you to think about this very carefully, Mr. Atkinson. If you were in your pub with a chemist from a competitive company, would you think it was proper or improper to tell him, while you were employed by CooperVision, that CooperVision were using 99%, 0.5 and 0.5 formulations?

A. I probably would not tell him, no.

Q. But would you think it was improper to tell him?

A. I do not know that I would think it was improper to tell him.

Q. Why would you not tell him?

A. It is just that when I meet with colleagues in the industry, as I often do, we do not usually discuss these sort of things."

It appears to me that that cross-examination and the answers it elicited has little to do with confidentiality. All it goes to is whether or not it would be a breach of the employee's duty of good faith, while employed by one company, to offer assistance to a competitor.

It appears to me that this is the sort of area in which the extent of the employee's right to use his acquired skill and expertise comes into play. It is very easy to slip into the assumption that because polymers are in issue the technology used must be complicated. The court can easily be blinded by the use of technical expressions with which it is not familiar on a day to day basis. In reality the polymerisation process can be likened to making cement from one or two grades of sand (the monomer), cement (the cross-linker), water (the initiator) and sometimes lime. If an employed builder was told that, to make good cement, it was desirable to use one spade full of lime to every sack of cement, or an employed baker was told that to make a good loaf of bread, one teaspoon of salt and a teaspoon and a half of sugar should be added to each pound of dough, few would think it improper for the employee to go off and use that knowledge for another employer. I think it is necessary to guard against imposing more stringent restraints on more technical employees, particularly those whose very value as employees is their deep knowledge and practical expertise in the field. It appears to me that an honest chemist employee of CV Labs, PLL or one of their many competitors, would inevitably learn and remember the particular blends of ingredients used to make the employer's hydrogels. He would know, as is the case here, that there is nothing surprising or out of the ordinary about that blend or the hydrogel it produces. Numerous other similar blends would be expected to work just as well, each producing a slightly different hydrogel. The documents in this case demonstrate that it is common for one company in this industry to look at and sometimes imitate the products of its rivals. For example, OSI-1's own advertising leaflet refers to its competitors' products when it says:

"Interchangeable with CibaSoft, DuraSoft, and Optima 38 lens designs."^[85]

If a company wishes to imitate PLL's lenses it will know that PLL uses 38% polymacon and 55% methafilcon for its lenses, because PLL has told the world so in its advertisements. If such a company employs an ex-employee chemist from PLL, is he entitled to use his expertise and knowledge of how to imitate such polymers or must he go through the entirely artificial, but short, process of working it out for himself? In my view a fundamental part of the expertise of a good polymer chemist who has spent a significant part of his working life working with a particular class of polymers is his knowledge of how to adjust the mix of reagents used to make various polymers differing, for example, in their water absorbing properties. This applies with particular force to a man of Mr. Atkinson's expertise. He has been heavily involved with the two polymers in issue for many years. He played a significant part in the work which went into the introduction of one of them to the market. As the Court of Appeal pointed out in Lancashire Fires, finding the borderline between what is protectable as confidential information and what is not because it forms part of an employee's skill and expertise may be difficult. In the end it is a question of feel and impression. I have come to the conclusion that the use by the defendants of formulations within the ranges or the target figures specified by the plaintiffs is not a breach of confidence. A skilled man of honesty and intelligence would not believe it was in any way improper to make those formulations for a new employer. For what it is worth, I do not believe that Mr. Atkinson thought that what he had done was improper. My assessment of him was that he was an intelligent and entirely honest man.

I have based this conclusion on the technical evidence tendered during the course of the trial. However I should mention that, it appears to me that this view is also consistent with the PSA. As I have noted above, that contemplates and provides that at some time in the future AVCL would be making for itself and selling the covered products which had been supplied by PLL under the PSA. That means the same lenses made of essentially the same material. There is nothing in the agreement which suggests that the parties considered that AVCL would be acting improperly by making its own lenses of those materials.

(b) Curing conditions

The initiator used in the polymers in issue is heat sensitive. That is to say, the polymer reaction will only be kicked into operation if the initiator is heated up. Once the reaction starts, it gives off heat (it is said to be exothermic). When the reagents have all reacted together, the polymer is said to be cured. The curing conditions are chosen to ensure that the reaction goes to completion. Mr. Fruth said as follows:

"Referring to SOTP 175(3) the curing conditions for polymacon products are as follows:-

[particular temperature "X" +/- 50C] for [Y] minutes."

He gave evidence in similar terms in relation to the plaintiffs' other polymer. He went on to say:

"Importantly, in both these curing cycles, the oven is preheated first."^[86]

He then pointed out that the defendants' curing cycles were similar, though identical neither in temperature or duration and he added;

"Importantly, the oven is also preheated as per the system developed at PLL".

Just like cooking a hard-boiled egg, the instructions are to keep the polymer hot enough long enough for it to go completely hard. The fact that either temperature or time or both is different emphasises the non-critical nature of this item. There is no material which indicates that the defendants' regime was copied from the plaintiffs'. Furthermore, I cannot conceive of this being other than material which any honest and intelligent technician would feel free to use for another employer. It is something which could be worked out for any new polymer in a very short time indeed. It is not confidential information. As for the preheating instruction which Mr. Fruth asserted was so important, because the lenses are made on a production line basis, a stack of moulds will be waiting ready for curing when the previous batch of moulds finishes its curing cycle. The cured batch is removed from the oven and the new batch is put in. It would be absurd to cool the oven down after a batch simply for the purpose of warming it up again so as to get the heat-sensitive initiator in the new batch to work. Although Mr. Fruth said under cross-examination that the preheating was significant, it became clear that he had no technical basis upon which to make that assertion. He suggested that one of the plaintiffs' technical experts might be able to offer an opinion on the subject. None of them did. It was not put to the defendants. Inevitably, a pre-heated oven was also used by CooperVision. This is not confidential information. I think it would surprise any honest and intelligent technician to be told that he could not use a simple convenient practice of this sort when working for a new employer.

(c) Moulding machine settings.

There are a number of operating parameters which have to be set on the BOY moulding machines. These settings for the defendants' machines are very similar indeed to the settings for the plaintiffs' machines. The similarity raises an inference of copying. Furthermore the complete list of settings for a moulding machine is not the sort of matter which an ordinary technician would take away in his head. The defendants admitted that such a list of settings might well possess the necessary quality of confidence. However, during cross-examination it was accepted that there would be little point in simply copying across a group of settings used on one machine in one factory to another machine in another factory. Even if the machines are identical and are intended to be used for the same process, each one has to be set up precisely and individually^[87]. This came out particularly clearly in the evidence of Mr. Kenney, one of the plaintiffs' technical witnesses;

"Q. No sensible moulder would ever go ahead with settings of any description as a standard without having first tested all through the range of available settings of interest to him. Would you accept that?

A. Yes."

This topic has given me some concern. But it was not disputed that the personnel employed by the defendants were highly competent in their technical fields. In the end the plaintiffs have not persuaded me that on a balance of probabilities the defendants copied their moulding machine settings from the plaintiffs. To have done so would have saved them no time since each machine would need to be re-set to its own specific settings. Setting the machine from scratch would take a day^[88] or two^[89] to a skilled operator. There has been no breach of confidence under this head.

(d) Raw materials

At one stage the plaintiffs asserted that the identity of the suppliers of their raw materials, some but by no means all of whom are also suppliers to the defendants, was an item of confidential information. Some of those suppliers are well known names in the chemical field. The allegation was dropped during Mr. Males' reply speech.

(5) Additional Computer Programs; MPCS, AMIS, MPS

The plaintiffs alleged that all three of these programs were confidential and had been used without licence by the defendants. In the reply speech they relinquished the claims in respect of MPCS and AMIS but maintained the claim in relation to MPS.

The MPS software was written to enable PLL to digest historical sales and supply data and to handle forecasts for future requirements from AVCL and OSI. It went through three versions. The last of these was written in 1993. The first was completely written by Anthony Galley, the second and third less so. Copies of the program were held not only by PLL but also by AVCL. They were used by both companies although it seems that all or substantially all the identifiable cost associated with the writing of the program was borne by PLL. The defendants said that it contained no ingenious matter. The plaintiffs' claim was not to the principles of data manipulation it contained or such accountancy or economic models it might use but only the detailed program itself. In the end it was not seriously disputed that the detailed program has the necessary quality to be treated as confidential and was in fact so treated by the parties. The only serious argument advanced against the plaintiffs' case was that the program was written for the benefit of both PLL and AVCL and it was therefore in some way their joint property and that it was now too late for PLL to complain of AVCL's retention and use of it. I reject these arguments. The program was written for PLL. In so far as it was confidential, that right to assert confidentiality was owned by PLL. The fact that AVCL used the program while it was on good and trading terms with PLL is irrelevant. Now that the relationship has broken down, AVCL has no entitlement to retain a copy or to use it.

(6) Research & development projects

Although in the statement of claim the plaintiffs had asserted a claim to confidence in relation to "divers research and development projects", by the time of the further and better particulars this had been reduced to some extent to the following:

" In particular, since September 1992, the R&D Department has made improvements and inventions relating to the following:-

(1) Blister Pack Design & Development;

(2) Wet Processing Support;

(3) Compatibility Studies;

(4) Lens Tinting;

(5) Alternative methods of lens measurement;

(6) Steam sterilising;

(7) Vial Ink Jet Printing;

(8) Production Layout;

(9) Lens testing (comparative tensile tests);

(10) Extractable experiments;

(11) Infra-red curing experiments;

(12) Conventional oven curing experiments;

(13) Wet Processing Re-Design (Complete Flower, Mask on Male, Hot Water

Extraction, Dry Lens Removal (Auto)); and

(14) Dry Manufacture (8/12 Cavity Bolsters, Validations, Equipment

Qualifications, Alternative Polypropylenes and Dry to Wet Conversion

Tables)."

By the time of the plaintiffs' Schedule of Use, they only relied on the research and development projects set out in Mr. Fruth's confidential statement. They were (a) modifications to the bolsters, (b) certain research into the impurities extraction stage of processing the lenses, (c) alternative designs, foils and sealing conditions for blister packaging, (d) changes in formulation relative to amounts of initiator and/or cross-linker, (e) curing optimisation and use of a heat tunnel; and (f) another form of extraction/hydration. Although Mr. Fruth admitted that he was not directly involved in any of these projects, he said he was aware of their ongoing nature and their importance to PLL. By the reply speech the plaintiffs had restricted their claim to item (b) only.

I can deal with this point briefly. When the lenses have been made they are soaked in a medium which will extract any unreacted monomer and other impurities. It is well known that this extraction is necessary. No claim to confidentiality was raised in relation to that. A particular, well known solvent ("A") is used at PLL. That solvent is not used at AVCL. AVCL uses another well-known solvent ("B"). B is used by a number of companies in the industry. Apparently at some stage PLL conducted some investigations into whether it would be worthwhile changing from A to B. The fact that such research had been conducted by PLL was communicated to AVCL by Anthony Galley. It is not suggested that any details of the research or the results were passed or that any use was made of any extraction regime using B formulated by PLL (if, in fact, they formulated one). The only matter communicated was that B could be used as a solvent. In my view this was not information which could be treated as confidential. It was simple and basic. Even if the results of the experiments might have been confidential, and I make no finding as to that, the fact that it was possible to use B was not. Furthermore, even if this had been confidential, it appears to me that it would have been a small matter for the defendants to have carried out any tests they wanted to try out B as an alternative to A. This claim also fails.


 


Section 5 - Breach of Confidence. The PLA defence

The defendants argue that they have an additional defence to the plaintiffs' breach of confidence claims. The obligations of confidence here arose out of and in the context of the package of agreements entered into in September 1992. Until that time, it appears that Mr. Geoffrey Galley and PLL were treated as co-owners of all the technology employed in PLL's business. However the ownership of the technology was revisited for the purpose of the 1992 agreements and, it is said, the result is that the defendants still have a contractual right to use all the pre-September 1992 technology. This is of importance because, if successful, it provides the defendants with a contractual defence to most of the plaintiffs' claims, including, in particular, those relating to the use of the PLL's drawings of production tooling and machinery. It can not provide a defence to claims relating to the use of the MPS program because the version of this in issue, that is to say the third version, post-dates the agreements.

This defence arises out of Clause 5 of the PLA which is in the following terms:

"Know How Improvements. The Patent Owners [i.e. most of the personal defendants] acknowledge and agree that they do not have any ownership interest in any know how or technology currently being used by PLL, other than to the extent covered by the Licensed Patents (as they are on the date of this agreement). The Patent Owners further agree that any additional know how or technology developed by PLL, and any improvements to the Licensed Patents developed by PLL, will be owned solely by PLL, and that the Patent Owners will not have any rights thereto."

The plaintiffs say that, with the sole exception of whatever was encompassed by the expression "covered by the Licensed Patents", this clause constituted an unequivocal agreement by the Patent Owners that they had no ownership interest in any know-how and technology used by PLL as at 30 September 1992. The technology "covered by the Licensed Patents (as they are on the date of this Agreement)" referred to in clause 5 of the PLA was quite simply the invention which was disclosed and claimed by the Licensed Patents as they then stood. The plaintiffs say that is the natural meaning of the expression used.

The defendants suggest a much wider interpretation. They say that the technology covered by the Licensed Patents includes the actual machinery and inserts in use at PLL, at least so far as necessary to make the covered products referred to in the PSA. In fact they said that it covered all the technology used by PLL up to but not including that used in the wet processing stage of manufacture. The fact that covered products are referred to in the PSA and not the PLA is of no significance because all the parties agreed that the bundle of 1992 agreements were interrelated and should be read together.

The argument in support of the latter construction started by reference to the wording of the Term Sheet, dated 24 August, 1992, which had preceded the September 1992 agreements and constituted a form of heads of agreement. However, Clause 13.5 of the PLA provides;

"This Agreement and its exhibits are the complete and exclusive agreement between the parties with respect to the subject matter hereof. This Agreement supersedes any and all prior agreements, communications and understandings, both written and oral, regarding such subject matter, including, without limitation, that certain letter agreement dated August 24, 1992. ..."

The intention of the parties was that the Term Sheet should not be looked at to construe or modify the PLA. I do not think it is legitimate to refer to it. I understood Mr. Pumfrey to accept that in his closing speech.

The argument then proceeded as follows; The first sentence of Clause 5 is an acknowledgement that the Patent Owners do not have any ownership interest in certain know how, but the purpose of this is not to deprive the Patent Owners of their rights but to prevent them from using any rights over the technology to interfere with PLL's exploitation of the patent licence granted under the PLA. The exception only relates to technology "covered by Licensed Patents" and the latter expression covers everything claimed or described in the patents. In other words the exception covers the whole of the dry process. If that is so then the protection given to PLL would be illusory because the Patent Owners would be entitled to assert their rights against PLL in respect of the technology used in any part of the dry process, save for that expressly licensed to it under the PLA itself. This does not commend itself to me as a sensible construction of this provision.

However the defendants say that their construction is to be preferred to the much narrower one proposed by the plaintiffs because if the latter is right, the contingent sub-licence provisions of the PSA would become unworkable. If, as Mr. Fruth claimed, lenses identical to the covered products could only be made using the same equipment, the same process and the same polymers, it was inherent in the bundle of 1992 agreements that AVCL must be able to use all the necessary equipment, process features and polymers to enable them to make the covered products pursuant to the contingent sub-licence. The right to do this must come from the Patent Owners when they grant their patent licence. If that is not so, then the contingent sub-licence to make covered products would be unworkable. More generally, the bundle of agreements contemplates that AVCL, with a licence from the Patent Owners, must be able to continue supplying to the market precisely the same products supplied to it by PLL under the PSA once the latter agreement comes to an end. As a result, the defendants say that it is the inevitable inference that know-how and technology in existence at the date of the agreement was at the disposal of the Patent Owners, to enable them to assist licensees, those licensees including AVCL.

I can see the force of the argument in relation to AVCL's right to continue selling the same products after termination of the PSA, but I do not accept that it leads to the construction of Clause 5 of the PLA advanced by the defendants. First of all I am not persuaded, for example, that it is necessary to have, say, a male optic sleeve of identical design to that used by PLL in order to make identical lenses. As I understood the defendants' case, that was not suggested. On the contrary, for many pieces of equipment the confidential information relied upon, namely the detailed dimensions, could be replaced by alternatives without difficulty and without any impact on the design or quality of the finished products. The argument of necessity in relation to many items of information simply does not run.

It appears to me that the explanation of the interrelationship between the plaintiffs' claim to confidential information and the right of AVCL to continue making and selling the same covered products is much more mundane. In 1992, what was needed to make products identical to the covered products was (i) identical or substantially identical polymers, (ii) identical or substantially identical lens shapes and (iii) the liquid edge technology. At that time no one considered that there was anything of technical significance in the process and equipment operated by PLL except for the liquid edge design. All the rest was thought to be standard. It was, as I have explained above, all taken from others in the industry. That view did not change until these proceedings were commenced. In saying that, I have not forgotten that Mr. Fruth and Mr. Geoffrey Galley thought they might be able to sell the complete package, including liquid edge technology, for large sums to third parties. But the fact that they thought they might be able to secure a large sum for the package throws little light on whether there was anything of technical substance in the details of the equipment and the process. For reasons given above, I have come to the conclusion there was nothing confidential in the polymers used by PLL or the detailed designs of the lenses they put on the market. It follows that the only thing which AVCL would have needed to produce substantially identical products was a licence under the relevant liquid edge patent. That was catered for by the 1992 agreements.

I cannot accept the construction advanced by the defendants. On the other hand the construction advanced by the plaintiffs is too narrow. Clause 5 looks at the know how or technology being used by PLL in 1992 and stipulates that any of it which is "covered by the patents" is owned by Patent Owners. It does not mean, as the plaintiffs suggested at one stage, only that technology described in the liquid edge patent. Were that so, it might not cover anything in fact used by PLL. To see what is covered, it is then necessary to see what is the scope of the patent. The claims are of two types; claims to plastic moulds with the special edge feature which avoids the production of a skirt or 'flash' round the cast lens and claims to a method of casting lenses using such moulds. The protection given by those claims extends to the moulds and the method. It does not cover, for example, particular polymer mixes. Furthermore, the monopoly acquired by the grant of the patent is extended by the provisions of section 60(2) and (3) of the Patents Act, 1977 to cover "essential elements", other than staple commercial products, used for putting the invention into effect.

In my view it follows that the detailed designs of the moulds are covered by Clause 5 together with the detailed designs of the metal parts used for making those moulds. The design of the operating faces of the MOI's and FOI's and their associated sleeves and information such as the 'add factors' are included within Clause 5 but not other matters, such as the detailed design of the rest of those parts or the design of the rest of the production equipment or the rest of the process. Whether that was the real intention of the parties is not a matter with which I am concerned. It was not suggested that a case for rectification to recognise a wider title in the Patent Owners would be possible and no application to that effect was launched. In the result, in large part the defendants defence under this head has failed.

This leaves one other related issue which I should deal with now. At a number of points during the trial and the plaintiffs' submissions, it was suggested that the defendants knew that they were taking the plaintiffs' confidential information and that this should be taken into account in deciding what relief would be appropriate. In particular this was levelled at the use by the defendants of the microfilms of the plaintiffs' equipment, the overwhelming majority of which were in the possession of Mr. Geoffrey Galley.

It was not suggested that at the time that those microfilms were made, any of the defendants were behaving improperly. The plaintiffs readily accepted that making the microfilms was necessary for security purposes but they said that the subsequent misuse was done knowing that it constituted a breach of the plaintiffs' rights.

I have no doubt that when the instruction was given to make the microfilms, the defendants, and particularly Mr. Geoffrey Galley, thought that it was necessary to have a record of the state of development of the technology as of September 1992 so that they would know what technology it would be free for them to use in the future. That was a major purpose in making the microfilms. I accept that when the microfilms were subsequently used none of the defendants thought they were doing anything wrongful. They believed, quite reasonably, that the only technology of worth was in the liquid edge patents and that all the rest was basic simple engineering. Just as PLL felt free to copy the designs of CooperVision and CV Labs, so it was thought that there was nothing wrong in the same process being gone through again for the benefit of AVCL. I have come to the conclusion that in some areas that understanding of what the defendants and AVCL were entitled to do by virtue of the provisions of the PLA was wrong. I do not doubt the bona fides of the defendants. If they had thought that there was any legitimate complaint which could have been levelled at their activities, they would not have used the drawings. The use of those drawings did not significantly speed up their endeavours to set up a competing production facility.


 


Section 6: Breach of Confidence - Relief

Introduction

Since I have come to the conclusion that some of the plaintiffs' claims to breach of confidence have been made out, it is necessary to consider what is, in the circumstances of this case, the appropriate relief. In the statement of claim, the plaintiffs' seek extensive relief against the defendant but, in relation to the confidence claims, the relief falls under 4 heads namely (1) injunctive relief, (2) delivery up, (3) a declaration that AVCL holds part of its business and assets on trust for the plaintiffs and (4) financial relief.

(1) Injunctive relief.

It is common to classify injunctions as either prohibitory or mandatory. However the expression 'prohibitory injunction' is a broad one. It covers a wide variety of orders made by the courts which share the common feature that the court restrains the addressee from doing one or more acts. The terms of a prohibitory injunction will be tailored to meet the particular facts of the case before the court. In the case of actions for breach of confidence it is possible to split the prohibitory injunction which the plaintiff will normally invite the court to make into two distinct parts. First there is the order which restrains the wrongdoer from continuing to use, or benefit from the use of, the confidential information. Secondly there is the order preventing the wrongdoer from making the information public. The first is primarily directed to prevent the wrongdoer from benefiting from his wrongful acts or continuing to inflict damage on the plaintiff while the second is directed more to preserving the confidential nature of the information, that is to say preserving the subject matter of the suit. There is no reason why a court should feel constrained to choose simply between granting both or neither. The factors which may justify granting or refusing one type of prohibitory injunction may not be identical to those relevant to the grant or refusal of the other. Particularly in relation to this type of relief, the court has a duty to frame the relief ordered to secure a just and equitable result. It is convenient to commence this part of the judgment by considering whether, in the light of the breaches which I have found, it is appropriate to grant a prohibitory injunction against continued use by the defendants of some or all of the tainted technology or business.

(a) injunctions against continued use.

Before considering whether in this case it would be appropriate to restrain the defendants from using their current technology or running their business, it is right to consider precisely what the injunction is going to stop and how that relates to the plaintiffs' rights which have been breached. In particular what is the effect of an injunction, as sought here, which prohibits a defendant from "making any use of" the confidential information? Where the defendant continues to possess the confidential information and his products incorporate or disclose it or their manufacture continues to use it, an injunction against use will automatically restrain continued operation of the process and sale of products. But what would be the effect of an injunction in those terms where the defendant's products or process do not themselves continue to incorporate or disclose confidential information although they were brought into existence or were perfected or owe their commercial success to the fact that confidential information was used in the past? Such products or processes can be referred to conveniently as "derivative" or "derived". If exploitation by the defendant of such derived products and processes is considered to be continued use of the information employed in their creation or development, an injunction against use would have the effect of prohibiting further exploitation of the derived matter. If that is so, the court should consider whether injunctive relief which goes that far is intended and appropriate.

There are at least two types of case in which derivative works may be in issue. The first is where, at the date of judgement, the information is no longer confidential but it was at the time the products were made or when the production equipment or process was designed or constructed. In that case even if the products incorporate or disclose, or the process uses, the information, it is not confidential information. This touches upon a part of the so-called "spring-board" principle based on the well known passage in Roxburgh J's judgment in Terrapin Ltd. v. Builders' Supply Co. (Hayes) Ltd. [1967] RPC 375 at page 391;

" As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public."

This could be understood as meaning that, after the information has become public knowledge, it can still be the subject of an injunction. I do not think that that is what Roxburgh J. meant. All that he indicated was that where confidential information has been used by a defendant to get an illegitimate head start, that head start is still illegitimate even if, at a subsequent date, the information becomes public. It does not address what relief should be granted. The point is touched upon by Megarry J. in Coco v. A.N. Clark (Engineers) Ltd [1969] RPC 41 at page 47;

"I must also return to a further point, namely, that where confidential information is communicated in circumstances of confidence the obligation thus created endures, perhaps in a modified form, even after all the information has been published or is ascertainable by the public; for the recipient must not use the communication as a springboard (see the Seager case, pages 931 and 933)."

Unfortunately Megarry J. does not appear to have returned to the point with which I am concerned.

Normally a court will not grant an injunction to restrain the interference with a right which has expired by the date of judgment. This does not prevent the court from granting financial relief for past breaches. It may be that this was what Megarry J had in mind when he referred to the obligation of confidence enduring in a modified form after publication. An analogous point was touched upon, obiter, by Scott J. in Balston Ltd. v. Headline Filters Ltd [1987] FSR 330 in which at page 330 he said;

"It is ... arguable that the second defendant was in breach of duty over the period 16 April to 11 July. His employment by the first plaintiff still continued, in form at least. The second defendant had been released from some of his duties of employment, but it is arguable that a duty of fidelity survived. It there was a breach of duty, the second defendant may be liable in damages ... [Counsel for the plaintiffs] invited me to regard this as a case in which the defendants should, by means of an interlocutory injunction restraining in effect their competition with the first plaintiff, be deprived of the benefit of the second defendant's breaches of duty committed during the continuance of his employment between 16 April and 11 July 1986. I do not so regard this case. These past breaches of duty, if that is what they were, cannot, in my judgment, sustain an interlocutory injunction on their own account. Whether an injunction, interlocutory or otherwise, can ever be justified on the ground that the grant is necessary in order to deprive a contract-breaker of the fruits of his breach of contract, I regard as highly questionable. ..."

This question was also considered in Attorney General v. Guardian Newspapers (No 2) [1990] 1 AC 109 (the Spycatcher case). Having held that the duty of confidence is extinguished as against a recipient from the confidant once the information has become general public knowledge, Lord Brightman considered, obiter, the position of the confidant himself in those circumstances. At page 266 of the report he said;

"In my opinion the reason why the court would, or might, grant an injunction against Wright if he now brought himself within the jurisdiction and sought to publish Spycatcher here, is not that such an order would recognise a subsisting duty of confidence, but that it would impede the unjust enrichment of Wright, or preclude him from benefiting, tangibly or intangibly, from his own wrongdoing; or perhaps that the copyright of the work would in equity be vested in the Crown, as suggested by three of your Lordships."

The same point was considered by Lord Griffiths as follows;

"The next step in this argument is to assert that if Peter Wright wished to publish Spycatcher in this country today, the Government would still be entitled to an injunction to stop him doing so. I agree that the Government would be entitled to such an injunction but at this stage the argument becomes more difficult and the reason for granting the injunction must be carefully examined. The Attorney-General accepts that so far as betraying secret confidential information to our enemies is concerned, the damage has been done, and no further damage of that kind will result from publishing Spycatcher in this country. Nevertheless, the Attorney-General, as I understand the case, advances three separate arguments each of which, it is submitted, would justify the grant of an injunction against Peter Wright. ...

The third argument is that even if publication of Spycatcher in this country would cause no further harm to the Security Service, Mr. Wright nevertheless remains bound by his duty of confidence because he cannot free himself from this duty by breaking it, or to put the matter in more colourful language, he cannot be permitted to profit from his own wrongdoing. All the judges who have so far considered this case have accepted this argument. The Law Commission after an exhaustive study of the law of confidence came to the opposite conclusion; they recommended that once confidential information has come into the public domain (and there can be no doubt that Spycatcher is in the public domain) the obligation of confidence should come to an end even if the confidant is responsible for the publication: see Law Commission Report on Breach of Confidence (1981) (Cmnd. 8388). The Law Commission were, however, considering the problem in terms of breaches of commercial confidence and the "springboard doctrine" [Terrapin Ltd. v. Builders' Supply Co. (Hayes) Ltd. [1967] RPC 375] which prevents a confidant responsible for commercial information becoming public knowledge reaping any financial benefit from his breach. There may be sound reasons for not granting an injunction after a breach of a commercial confidence when it may be possible to provide recompense by way of damages, and some of the difficulties that arise in such circumstances are discussed in the judgment of Megarry J. in Coco v. A.N. Clark (Engineers) Ltd [1969] RPC 41, but they do not fall for consideration now So far as members of the Security Service are concerned, damages would be a wholly inappropriate remedy for their breach of faith and although it would provide some disincentive to make them account for any profits they might make, we have the example of Mr. Cavendish who published a private memoir, at his own expense, to show that liability to account for profits is not the answer. It would make a mockery of the duty of confidence owed by members of the Security and Intelligence Services if they could discharge it by breaching it. I would therefore hold that whatever publication may have been achieved abroad, Peter Wright remains bound by his duty of secrecy and confidence and will not be allowed to publish Spycatcher in any form in this country."

It must be remembered that this speech was made in a case in which Mr. Wright was not represented. However the injunctive relief which Lord Griffiths would have been prepared to grant against Mr. Wright had he been before the court, he was prepared to grant against one of the three newspapers, the Sunday Times, on the basis that it was "standing in Mr. Wright's shoes". In this respect he dissented from the majority of the House of Lords. In expressing the views set out above, it appears that Lord Griffiths was concerned with the very special position and obligations of members of the Security Service and drew a distinction between them and the position of those engaged in breaching commercial confidences. It is also not clear what principle was being deployed to justify the grant of an injunction once the information had become public knowledge. In its broadest formulation it appears to have been on the basis that the wrongdoer must not be allowed to benefit from his wrongdoing. On the other hand, the real principle may be encapsulated in the statement; "It would make a mockery of the duty of confidence owed by members of the Security and Intelligence Services if they could discharge it by breaching it". In other words, where confidential information becomes public knowledge as a result of breach by the wrongdoer, the courts will not allow him to rely upon the fact that it has become so. He is peculiarly disabled from relying on the public status of the information. In a sense he is estopped from asserting that the information is no longer confidential. That the latter may have been, in Lord Griffith's view, the guiding principle is supported by a later passage in his speech in which he said;

"[Two of the defendant] newspapers have played no part in the publication of Spycatcher and will draw solely upon the contents of a book now firmly in the public domain. They assert that the information in Spycatcher has lost the quality of confidentiality and, this having occurred without their assistance, they are in no way tainted by Peter Wright's breach of confidence and must be free to publish. In the context of a claim to protect a private confidence, this would be a conclusive answer to the claim." (my emphasis)

Lord Goff also dealt with this issue in a speech of great clarity and, to me, persuasiveness. His analysis is sufficiently illustrated by the following extracts;

"I start with the broad general principle (which I do not intend in any way to be definitive) that a duty of confidence arises when confidential information comes to the knowledge of a person (the confidant) in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others. ... (page 281B)

To this broad general principle, there are three limiting principles to which I wish to refer. The first limiting principle (which is rather an expression of the scope of the duty) is highly relevant to this appeal. It is that the principle of confidentiality only applies to information to the extent that it is confidential. In particular, once it has entered what is usually called the public domain (which means no more than that the information in question is so generally accessible that, in all the circumstances, it cannot be regarded as confidential) then, as a general rule, the principle of confidentiality can have no application to it. ... (page 282B)

Then, having pointed out that it is well established that a duty of confidence can only apply in respect of information which is confidential he continued;

"From this it should logically follow that, if confidential information which is the subject of a duty of confidence ceases to be confidential, then the duty of confidence should cease to bind the confidant."

He went on to say that that must be so if the information becomes public knowledge by act of the confider or a third party and then, at page 286, considers whether the position is any different if the confidentiality is destroyed by act of the confidant. He pointed out that the suggestion that the confidant can be restrained in those circumstances appears to be based on the principle that the confidant cannot be allowed to profit from his own wrong. As to that he stated;

"The statement that a man shall not be allowed to profit from his own wrong is in very general terms, and does not of itself provide any sure guidance to the solution of a problem in any particular case."

It appears to me that the most important part of Lord Goff's speech on this issue is to be found at page 286F;

"I have to say, however, that I know of no case (apart from the present) in which the maxim has been invoked in order to hold that a person under an obligation is not released from that obligation by the destruction of the subject matter of the obligation, on the ground that that destruction was the result of his own wrongful act. ... On this approach, it is difficult to see how a confidant who publishes the relevant confidential information to the whole world can be under any further obligation not to disclose the information, simply because it was he who wrongfully destroyed its confidentiality. The information has, after all, already been so fully disclosed that it is in the public domain: how, therefor, can he thereafter be sensibly restrained from disclosing it? Is he not even to be permitted to mention in public what is now common knowledge? For his wrongful act, he may be held liable in damages, or may be required to make restitution; but , to adapt the words of Lord Buckmaster, the confidential information, as confidential information, has ceased to exist, and with it should go, as a matter of principle, the obligation of confidence. ... if [the confidant] simply commits a breach and destroys the thing, then the injured party is left with his remedy in damages or in restitution. The subject matter is gone: the obligation is therefore also gone: all that is left is the remedy or remedies for breach of the obligation. ...[S]ome principle has to be enunciated which explains why the continuing duty of confidence applies to some, but not to others, who have wrongfully put the book in circulation. Such a distinction cannot be explained by reliance upon the general statement that a man may not profit from his own wrong.

... If [he is] within the jurisdiction of the English courts, [the confidant] would be held liable to account for any profits made by him from his wrongful disclosure, which might properly include profits accruing to him from any subsequent exploitation of the confidential information after its disclosure: and, in cases where damages were regarded as the appropriate remedy, the confidant would be liable to compensate the confider for any damage, present or future, suffered by him by reason of his wrong. So far as I can see, the confider must be content with remedies such as these."

These passages are directed at the question of whether or not the confidant can disclose the information once it has ceased to be confidential. Different considerations might apply to the question of whether he can use it. This also was considered by Lord Goff;

"I have considered whether the confidant who, in breach of duty, places confidential information in the public domain, might remain at least under a duty thereafter not to exploit the information, so disclosed, for his own benefit. Suppose that the confidant in question was a man who, unwisely, has remained in this country, and has written a book containing confidential information and has disposed of the rights to publication to an American publishing house, whose publication results in the information in the book entering the public domain. The question might at least arise whether he is free thereafter to dispose of the film rights to the book. To me, however, it is doubtful whether the answer to this question lies in artificially prolonging the duty of confidence in information which is no longer confidential. Indeed, there is some ground for saying that the true answer is that the copyright in the book, including the film rights, are held by him on constructive trust for the confider - so that the remedy lies not in breach of confidence, but in restitution or in property, whichever way you care to look at it ..." (page 288E)

The speeches of Lord Keith and Lord Jauncey do not really consider these issues.

This is not a simple issue but I must admit that I am attracted by Lord Goff's analysis. It seems to me that, at least in the area of breach of confidence, injunctions are granted not against the continued flow of a wrongful benefit arising out of or caused by breach of the plaintiff's rights but to prevent continuation of the breach. If a continuing activity of the defendant does not constitute a breach of confidence then it ought not to be injuncted even if it produces an unfair benefit to the defendant. Lord Griffiths agreed that that would be a conclusive answer to a claim against a third party recipient of the information. Like Lord Goff, I can not see why it should not be a conclusive answer to a claim against the confidant. The way the court reduces or eliminates the unfair benefit is by imposing financial penalties or, possibly, by the creation of a constructive trust. The latter is a form of relief sought by the plaintiffs in this action and I will consider it in due course.

The second type of case is where the defendant's derivative products, process or business have been made from or with the assistance of information which is still confidential but where they do not themselves directly disclose or incorporate the information. If the derivative products or process are regarded merely as illicit benefits flowing from misuse of confidential information, then, for the reasons set out above, I do not think that is a basis which would justify the court in granting an injunction. On the other hand it may be possible to argue that the continued use or exploitation of the derived product is to be regarded as a continued use or exploitation of the confidential information which was utilised for their creation. This is of relevance here. Even if I grant an injunction to restrain continued use of the MPS program, the defendant's business will have been assisted by its use in the past and it could be said that continuation of the business represents a continued exploitation of or benefit from it. In addition, Mr. Anthony Galley may have looked at the plaintiffs' Lens Design Program when creating his spreadsheet for the purpose of reassuring himself or confirming the steps he had already taken. The plaintiffs argue that if the defendants continue to use their spreadsheet they are continuing to take the benefit of the still secret Lens Design Program. They want the court to grant injunctions to restrain breach of confidence which would prevent continued operation of the AVCL business and use of the defendants' lens design spreadsheet.

The way the plaintiffs put their case is as follows. They say that the court has power to grant an injunction even where the information is not embodied in the product of the use. They submit that the principle stated in Prince Albert .v. Strange (1849) 1 Mac. & G. 25 namely;

"the Court will interfere by injunction to prevent a party availing himself in any manner of a title arising out of a violation of right or breach of contract or confidence"

applies here. They say that this should apply regardless of whether the ultimate product of the violation discloses the confidential information. They say that, as a matter of equity, the court should also seek to prevent the Defendants benefiting from their unlawful acts. The plaintiffs also rely on Union Carbide .v. Naturin at [1987] FSR 538. In that case the plaintiff's confidential method of making sausage skins had been stolen and taken abroad where it was used to set up a factory. Sausage skins from the offending factory were imported into England. The skins said nothing about how they were made. The plaintiff brought proceedings for breach of confidence here against the importer. The defendant importer applied to strike out on the ground that the statement of claim disclosed no reasonable cause of action. In the Court of Appeal the application was unsuccessful. Slade LJ said;

"The argument on this issue has been interesting and has raised important questions of law. However, I do not think it appropriate for this Court to attempt a definitive answer to them on this striking out application. Suffice it to say that, subject to the important question of notice, to which I will shortly turn, I am of the opinion that the cardinal principle referred to by Lloyd-Jacob J is wide enough to afford the Plaintiffs an arguable claim against Naturin on the basis that, by marketing the casings received from Viscofan, they are availing themselves of a title derived from a breach of confidence and are thus to be treated as making use of the confidential information itself. Possibly there may be other conceptually sounder legal routes by which the same result could be reached. However, I am not yet persuaded that a Plaintiff whose confidential know-how has been stolen and used by the thief to manufacture a product would necessarily be left without rights or remedies, at least against a third party who was in possession of the product and at all material times had full knowledge of all the circumstances in which the product had come into existence. I am not yet convinced that the arm of the law of equity would necessarily be too short to reach the third party in such a case."

In coming to the conclusion that the plaintiff's case was at least arguable, the Court of Appeal relied on the passage in Prince Albert .v. Strange cited above and also on a similar passage in the judgment of Lloyd-Jacob J. in Stevenson Jordan Harrison Ltd. v. MacDonald & Evans (1951) 68 RPC 190.

Since Union Carbide was a strike out application, the Court of Appeal did not have to decide whether or not the plaintiffs' claim was maintainable, only whether it was arguably so. I do not read it as supporting the argument that the very broad statement quoted from Prince Albert is adequate of itself to define those cases in which the courts will grant injunctions. Slade LJ's suggestion that there might be other conceptually sounder legal routes to support the plaintiffs' case suggests that he also harboured misgivings about simply adopting the statement in Prince Albert as unqualified.

A broad principle that courts of equity should grant injunctions to prevent wrongdoers from "getting away with it" has a tabloid appeal. However, it seems to me that the statement in Prince Albert must be treated with the same care as Lord Goff treated the somewhat similar broad statement "a man shall not be allowed to profit from his own wrong". I cannot believe that the use of any title which has arisen in some way, whether direct or indirect, substantial or insubstantial, proximate or remote from a breach of a right or contract will be stopped by the court. The broad field covered by that statement of principle must contain areas into which it would be quite inappropriate for the arm of equity to reach.

It seems to me that whether or not the use of a derived product, say, should be treated as a use of the information employed in its creation must be determined on the particular facts of the case. A very similar question to the one being considered here arose in the last century in relation to patent rights. A number of cases turned on the issue of whether the owner of a process patent here could object to the importation of a product which was made using the patented process abroad. The terms of the royal grant gave to the patentee the exclusive right "to make, use, exercise and vend the invention within the United Kingdom, and the right to have and enjoy the whole profit, benefit, commodity, and advantage accruing and arising by reason of the said invention". In some cases, this was said to give the patentee the right to prevent importation of the foreign made goods. For example in Von Heyden v. Neustadt (1880) 14 Ch D 230 James LJ said;

"A person who makes or procures to be made abroad for sale in this country, and sells the product here, is surely indirectly making use of and putting in practice the patented invention."

The importation of the derived goods was treated as a "use" or "exercise" of the patent rights here. However not all imported derivative articles were treated as infringing. In Wilderman v. F.W. Berk & Co. Ltd (1924) 42 RPC 79 the plaintiff was the owner of a patent relating to improvements in electrolytic cells use for the manufacture of alkaline salts, such as caustic soda and caustic potash. The defendant imported into the United Kingdom caustic potash which had been made in Germany in plant in which electrolytic cells using the patented improvement were employed. Tomlin J. approached the question of indirect use as follows;

"It is urged on the Plaintiff's behalf that, once I am satisfied that there has been used in connection with the manufacture of an imported article, in however an unimportant or trifling respect, some apparatus or material in respect of which there is a subsisting patent, the importation of the article manufactured is necessarily an infringement. I do not think that the cases to which I have been referred [which included Von Heyden] compel me to accept so wide a proposition, and I do not accept it. I cannot think, for example, that the employment of a patented cutting blow-pipe or a patented hammer in the manufacture of some part of a locomotive would necessarily render the importation of the locomotive an infringement.

In my judgment, each case must be determined on its own merits by reference to the nature of the invention, and the extent to which its employment played a part in the production of the article, the importation of which is complained of."

He dismissed the action because the plaintiff had produced no evidence to show that there was a substantial nexus between the imported potash and the patented improvement. It seems to me that a similar approach is appropriate in breach of confidence cases. It is not every derived product, process or business which should be treated as a camouflaged embodiment of the confidential information and not all ongoing exploitation of such products, processes or business should be treated as continued use of the information. It must be a matter of degree whether the extent and importance of the use of the confidential information is such that continued exploitation of the derived matter should be viewed as continued use of the information. In this case there was no evidence or suggestion that the MPS program made any or any significant contribution to AVCL's business. It is also quite clear that, even if Mr. Anthony Galley consulted the plaintiffs' Lens Design Program for the purpose of reassurance when producing the AVCL spreadsheet, it made no difference to the latter in content, time to produce or use. As I have already said, the use of it by Mr. Galley was trivial. Any relief granted in respect of these items of confidential information will not extend to an injunction to prevent the defendants from continuing to run their business or make use of their lens design spreadsheet.

This leads me to the major area of injunctive relief. In relation to some of the claims advanced by the plaintiffs I have found that the defendants have used and are continuing to use the confidential information in suit. In particular this applies to the detailed designs of the production machinery. No question of these designs being "derivative" arises. In most cases the machinery has been designed by reference to the plaintiffs' microfilmed production or general assembly drawings. The plaintiffs' confidential sets of dimensions are embodied in the defendants' equipment.

The plaintiffs' argue that, having succeeded at least in part on their claims, then prima facie they are entitled to injunctive relief to prevent the continued use of their confidential information. This is clearly right. Although the court retains a discretion as to whether to grant an injunction or other equitable relief, that discretion has to be exercised on well known principles. The normal approach is set out in the judgment of Lindley LJ in Shelfer v. City of London Electric Lighting Co. [1895] 1 Ch 287 at 315:

"... in exercising the jurisdiction [under Lord Cairns' Act to award damages in lieu of an injunction] thus given attention ought to be paid to well settled principles; and ever since Lord Cairns' Act was passed the Court of Chancery has repudiated the notion that the Legislature intended to turn that Court into a tribunal for legalizing wrongful acts; or in other words, the Court has always protested against the notion that it ought to allow a wrong to continue simply because the wrongdoer is able and willing to pay for the injury he may inflict."

It is that approach which must be the starting point for any consideration of whether or not injunctive relief should be granted. I agree with the plaintiffs on this and it is the starting point I adopt in this case. Nevertheless, the plaintiffs accept, and the Court of Appeal in Shelfer confirms, that they are not entitled as of right to an injunction. They accept that the court retains a discretion and that it may be legitimate to refuse an injunction if there are special or exceptional factors. The defendants suggest that there are in this case such special and exceptional factors which make an injunction, at least insofar as it restrains continued use of the plaintiffs' confidential information, inappropriate.

In Shelfer the Court of Appeal confirmed that there was still a discretion in the court to refuse injunctive relief in special cases. Lindley LJ put it this way;

"Without denying the jurisdiction to award damages instead of an injunction, even in cases of continuing actionable nuisances, such jurisdiction ought not to be exercised in such cases except under very exceptional circumstances. I will not attempt to specify them, or to lay down rules for the exercise of judicial discretion. It is sufficient to refer, by way of example, to trivial and occasional nuisances: cases in which a plaintiff has shewn that he only wants money; vexatious and oppressive cases; and cases where the plaintiff has so conducted himself as to render it unjust to give him more than pecuniary relief. In all such cases as these, and in all others where an action for damages is really an adequate remedy - as where the acts complained of are already finished - an injunction can be properly refused."

Similarly A.L. Smith LJ. said;

"In any instance in which a case for an injunction has been made out, if the plaintiff by his acts or laches has disentitled himself to an injunction the Court may award damages in its place. ...

In my opinion, it may be stated as a good working rule that -

(1) If the injury to the plaintiff's legal rights is small,

(2) and is one which is capable of being estimated in money,

(3) and is one which can be adequately compensated by a small money payment,

(4) and the case is one in which it would be oppressive to the defendant to grant an injunction -

then damages in substitution for an injunction may be given. ...

It is impossible to lay down any rule as to what, under the differing circumstances of each case, constitutes either a small injury, or one that can be estimated in money, or what is a small money payment, or an adequate compensation, or what would be oppressive to the defendant. This must be left to the good sense of the tribunal which deals with each case as it comes up for adjudication. ...Each case must be decided upon its own facts; but to escape the rule it must be brought within the exception."

A more recent example of the application of these principles is Kennaway v. Thompson [1981] 1 QB 88, although even in that case the successful plaintiff only obtained an injunction which restrained the defendants from repeating some of the acts of nuisance.

In this case, the plaintiffs argue that not only have they made out their case of breach of confidence, but they also pray in aid what they allege is the underhand manner in which the defendants have breached their rights. They say that it is clear that the defendants saved both time and trouble by misusing the confidential information; and that period of time enabled AVCL to remain in business when it otherwise would have gone out of business. That use was deliberate, when the defendants were on notice of the plaintiffs' position. It was deliberately concealed from both the plaintiffs and the court. They point to the fact that the defendants have admitted that information about use was deliberately withheld from Sir Peter Pain to improve the chances of avoiding an interlocutory injunction and that it is clear that the evidence put before the Court was misleading. All these factors they rely upon in support of their application for injunctions. In answer to a question from me, Mr. Males accepted, though with some reluctance, that the manner in which the plaintiffs behaved towards the defendants and conducted this litigation was also relevant. In any event, whether Mr. Males was or was not reluctant, it appears to me that those are matters which I can take into consideration in deciding whether or not to grant injunctive relief.

As I have already pointed out above, there is no doubt that after a disastrous attempt at openness, the defendants kept their plans to themselves for fear that Mr. Fruth would try to damage or destroy AVCL. There was nothing underhand about that. Mr. Males suggested that the proper course which the defendants should have adopted if they were fearful of Mr. Fruth's reaction, was to tell him what they were planning to do and, if he reacted by cutting off supplies, rely on their ability to obtain an interlocutory mandatory injunction to safeguard their business. I consider this to be a completely unrealistic suggestion. It was reasonable and proper for the defendants to fear that the plaintiffs would try any stratagem to damage their business. No businessman could have based his future plans on the hope that his company would be saved from oblivion by the grant of such an injunction. I have also come to the conclusion that the defendants did not think that what they were doing was wrongful. This was not a case of cynical disregard of the plaintiffs' rights. On the contrary, they eventually realised that the plaintiffs would object to the creation of an independent manufacturing facility, but they thought, correctly, that this was simply an objection to competition. It was not dependent on infringement of the plaintiffs' rights. I have no doubt that had the defendants realised that the course they chose to adopt would have given rise to a valid claim to breach of confidence, they would have designed around the plaintiffs' rights. That could have been done with little difficulty and with little additional cost both financially and in terms of time. As I have already noted, it is true that the defendants did not give a full and frank picture of their activities to Sir Peter Pain. This is a matter I have to take into account.

On the other hand I have taken into account a number of factors which point against grant of the non-use injunction which the plaintiffs seek. First, for reasons I have given above, the items of confidential information on which the plaintiffs have succeeded (putting to one side the MPS program) are, from a technical point of view, insubstantial. Once it is appreciated that the plaintiffs' plant, process and polymers are in nearly all respects unexceptional workshop variants, if variants at all, of other companies' plant, process and polymers, the trivial nature of its claims become apparent. This is not, of course, what the plaintiffs pleaded or what they put before Sir Peter Pain, but by the time of the plaintiffs' reply speech that, in my view, was all that was left. The one exception to this was the liquid edge technology owned by the Patent Owners (i.e. some of the defendants) not the plaintiffs. This, as Mr. Fruth proclaimed in OSI advertisements, was the all important feature of their process^[90]. The rest was run of the mill. Secondly, the damage, if any, caused by the breaches of confidence is small. What the plaintiffs wanted and still want is a termination of competition, but that has precious little to do with the confidential information which has been taken. In other words the damage caused by breach of confidence is not, as the plaintiffs seemed to be suggesting, the existence of AVCL as a competitor. Thirdly, to grant the relief which the plaintiffs seek under this head would be truly oppressive to the defendants. An injunction which had the effect of preventing AVCL from using the majority of its production equipment would, to all intents and purposes, destroy the company and the livelihoods of its employees. Such relief would inflict damage on AVCL and all the other defendants which far outweighs any small damage the plaintiffs may have suffered. For these reasons alone I would be prepared not to grant the plaintiffs the injunction against use which they have sought. However the matter does not end there. A party seeking equitable relief must show that he deserves the intervention of the court. This is not a high hurdle. The courts are not arbiters of morals, good taste or good manners. But there comes a point at which they will refuse to exercise their discretion in favour of a plaintiff. In particular they will not do so if the result would be, in effect, to reward improper conduct.

In many respects the plaintiffs' proceedings have been vexatious. I have referred to this at length above. Reckless claims to confidentiality have been put forward. Some of them have been persisted in. At one point, Mr. Anthony Galley was asked why AVCL had not paid any of the royalties due to the Patent Owners under their patent licence. In fact what had happened was that Mr. Geoffrey Galley had paid personally the royalties due from AVCL to all the Patent Owners other than himself and his son. AVCL has not paid anything. The reason was that the costs of this litigation were so onerous that AVCL did not have enough money to pay its lawyers and the royalties. According to Mr. Galley, had AVCL tried to pay the royalties it would have gone into liquidation. His view was that the litigation was being deliberately run in a way which would maximize the costs^[91]. Although he was not challenged on this view, I do not think it is necessary to draw any such conclusion. It is sufficient in my view to note that the reckless way in which the claims to confidential information were advanced inevitably increased the size of the proceedings, both at the interlocutory and final stage, and vastly increased the amount of written and oral evidence. It should have been apparent that this would put a large and unfair cost burden on a company which was just going through the process of trying to set up a production line. Whether by design or not, the proceedings have been conducted in a way which was oppressive.

Furthermore, it is virtually inevitable that had Mr. Fruth and OSI not determined on their policy towards AVCL, the latter's plant would have been set up openly and following discussion between the parties in a way which would have avoided all legitimate criticisms from the plaintiffs. Mr. Fruth was not prepared to honour either the letter or the spirit of the September 1992 agreements. He wanted to ensure that AVCL failed to survive. An injunction to restrain use of the plaintiffs' confidential information must be seen as a part of that plan. It would offend all notions of justice were the court to serve up to the plaintiffs the destruction of the AVCL business secured by way of an injunction, and thereby give to the plaintiffs by court order the unfair outcome which the plaintiffs tried but failed to achieve by breaching their contractual obligations.

Finally, in Armstrong v. Sheppard & Short Ltd. [1959] 2 QB 384, a decision of the Court of Appeal, Lord Evershed MR, with whom the other members of the court agreed, said in dismissing a plaintiff's appeal:

"[I]t is true to say that if a man, having a proprietary right, proves an infringement of that right, prima facie he is entitled to an injunction: but that needs some qualification. It is not a matter of unqualified right; and one ground for denying an injunction would be that the wrong done is, in the circumstances, trivial. That proposition is founded on the well-known case of Imperial Gas Light and Coke Co. (Directors) v. Broadbent ...

The judge was here dealing with the claim as I have formulated it: and he came to the conclusion that the circumstances of this case were special, and, as his judgment shows, that the damage was trivial. ... But there were other good grounds, and formidable grounds (as I think) for refusing the plaintiff an injunction. That he misled the defendants is beyond a peradventure. It is no less clear that he attempted to mislead the court. He asserted - contrary to the fact - that he had never had any conversation with the defendants about the matter at all; and in his evidence in chief he so swore, untruly. It is not, therefore, surprising that the judge came to the conclusion that he should grant no equitable relief; and in my judgment, on the facts of this case, he was well entitled to take that view."

I put this passage to Mr. Males. He said that if the court came to the conclusion that any of his witnesses had been untruthful, that should not be a significant factor in deciding whether injunctive relief should be given. He said that there had to be a sufficient nexus between the untruths and the cause of action. I accept the broad thrust of this submission. A defendant does not avoid injunctive relief merely by showing that the plaintiff has lied. The dishonesty has to relate to the issues giving rise to liability or to the relief being sought. In this case, however, it is my view that the evidence of Mr. Fruth and Mr. Lichtwardt went to the heart of the issues of breach of confidence and the request for an injunction. The extent of their dishonesty is a matter I have referred to already. If I had considered this to be a borderline case as far as the grant of this type of injunctive relief is concerned, their deliberate attempts to mislead the court would have led me to decline to make an order in the plaintiffs' favour.

However I do not think this is a borderline case. Having taken into account the various matters referred to above, I am not prepared to make an order restraining the defendants from using the confidential information on which the plaintiffs have succeeded. The plaintiffs relief must sound in money, assuming, of course, that they can prove any loss to them or benefit to the defendants.


 


(b) injunctions against disclosure

Although I am not prepared to grant injunctions against continued use of those items of confidential information on which the plaintiffs' claims have succeeded, different considerations apply to the claims for injunctions to restrain publication of the information. In the special circumstances of this case, one of the major factors which has led me to refuse to prevent continued use of that information by the defendants is that an injunction to that effect would cause enormous damage to the defendants when no or very little relevant injury is being suffered by the plaintiffs. Nevertheless the information, so long as confidential, has some value even if it is of minor technical significance and narrow scope. To a company which wishes to enter this industry, it may be useful to have a set of drawings of the machinery necessary for making lenses together with the confidence that those drawings are of a working production line. There has been no suggestion that the defendants have disclosed the details of their machinery to anyone save their employees and suppliers and two licensees. The latter are under express obligations of confidence in relation to the total package of material they have obtained or will obtain under their licences. It has not been suggested that confidentiality in any of the plaintiffs' information has been compromised by the defendants' activities or that a restraint imposed on the defendants preventing them from making public the details of that information would cause the defendants any significant inconvenience. The defendants did not appear to be concerned to resist an injunction to that effect, even though it has not been asserted that the defendants have threatened to make the information public.

Refusal of an injunction restraining publication would have the effect of destroying the subject matter of the litigation. Notwithstanding the unpalatable way in which the plaintiffs have conducted this litigation, in my view it would not be right for the court to go so far as to decline to preserve the existence of their asset when, as here, such preservation will cause no harm or significant inconvenience to the defendants. In the absence of any notable objection from the defendants I am prepared to grant an injunction against the defendants restraining them from publishing the information which I have held to be confidential. That injunction will need to be drafted in a way which makes it clear that it will not have the effect of preventing the defendants from making such disclosure as is necessary for the proper operation of their manufacturing operation.

(c) The defendants' licensees

The defendants have two licensees. The precise extent to which technology has been installed in their plants was not investigated in any depth during the trial. As I have mentioned, the licences are expressed to impose obligations of confidence on them. It has not been suggested that the defendants are threatening or intend to release them from those obligations. The freedom to operate the defendants' plants notwithstanding the breach of confidence applies equally to the plants erected or to be erected for these two licensees. On the other hand the obligation to keep the information confidential does apply. Although the licensees are not parties to this litigation and no relief is sought against them, the injunction I am prepared to order against the defendants restraining disclosure will need to be expressed in a form which makes it clear that the defendants cannot release their licensees from their obligations of confidence unless and until the plaintiffs' information in suit has become public knowledge. The injunction against disclosure imposed on the defendants means that for future licensees they will need to redesign those parts of their process which I have held to incorporate confidential information of the plaintiffs. However any injunction I am prepared to grant should be in terms which does not dislocate or interfere with the operation of the two licences which have already been granted and which, as I understand it, have been partly implemented already. They include obligations of confidence and the defendants will be obliged to enforce those obligations in the future to the extent necessary to protect the secrecy of any of the plaintiffs' information which the licensees have.

(d) Time limits on the injunctions

Although at one point it was suggested by the defendants that any injunctions granted against them for breach of confidence should be subject to time limits to take into account the time it would have taken them to have designed alternatives to the offending data, this raises difficult questions. In the end the defendants did not pursue this point.

(2) Delivery up

The plaintiffs sought delivery up of all documents containing or derived from such confidential information they succeeded on. This issue was not considered in any depth during the speeches. In principle however it seems to me that this form of equitable relief is in substance a species of injunction and should be determined on the same equitable principles. The most important documents which could come within this head of relief are the drawings used for making the defendants' production equipment. In principle all confidential information should be returned to the plaintiffs subject to one qualification. The defendants are to be entitled to keep copies of all documents needed for the running of their business which do not fall foul of any other injunctions granted to the plaintiffs. In particular, this will enable them to retain copies of the drawings which, according to the evidence, are valuable to ensure that the equipment can be repaired quickly when the need arises. The imposition of this restriction on delivery up is similar to the course adopted in Canada in Netupsky v. Dominion Bridge Co. Ltd. (1969) 43 Fox's Canadian Patent Cases 14, a case concerned with infringement of copyright in a small number of design drawings used in the construction of a civic stadium complex. In refusing to order delivery up, the British Columbia Court of Appeal said;

"In the circumstances it seems to [us] that on the one hand it would work a hardship on the respondent to make an order for delivery up of the infringing copies because the plans which incorporate the infringement will undoubtedly be required from time to time in the future in connection with the repair and maintenance of the stadium complex. On the other hand no real benefit will be derived by the appellant from an order for delivery up of the plans which incorporate the infringement and in any event the injunction which has been granted will adequately protect the rights of the appellant."

Needless to say, I will not order delivery up of any of the defendants' plant, equipment or products.

(3) Constructive trust

Mr. Males argued that PLL is entitled to a declaration that AVCL holds such part of its business and assets as are derived from or acquired by reason of its breach of confidence on trust for the plaintiffs. He said that this entitlement arose out of the fiduciary relationships which were created in this case. Because of certain obiter statements made in Attorney General v Blake [1996] 3 All E.R. 903, he suggested that it is necessary to distinguish between cases in which the breach of confidence arises in relation to an existing fiduciary relationship and those where there was no such pre-existing relationship. Blake, which I will consider below, could be read as indicating that a constructive trust could not come into existence in a normal breach of confidence action. Mr. Males said that even if that is true as a general proposition, it does not apply where there is a pre-existing fiduciary relationship. In such cases there is no difficulty in holding that a constructive trust exists. It is a standard equitable remedy for breach of a fiduciary relationship.

He said that there were two reasons for treating this as a case where there are existing fiduciary relationships. First there was an existing fiduciary relationship between Anthony Galley, Mr. Bevis and Mr. Atkinson on the one hand and PLL on the other by virtue of the former individuals' position as directors of the latter company. Secondly he pointed to the express provisions of clause 15.6 of the PSA which is in the following terms;

"[AVCL] acknowledges that any breach of its obligations under this Agreement with respect to the proprietary rights or confidential information of PLL will cause PLL irreparable injury for which there are inadequate remedies at law, and therefore PLL would be entitled to bring a Court action and to seek equitable relief in addition to all other remedies provided by this Agreement or available at law."

As to the first of these, it was not disputed that a director owes a fiduciary duty to his company. Assuming for the purpose of this argument that each of the three directors breached his obligation of confidence to PLL while still in the position of director, that would be a breach of that duty. Assuming also that that gave rise to a constructive trust, it was not explained, nor was any argument directed to showing, how that trust then became transferred to AVCL.

The argument relating to clause 15.6 appears to me to be misconceived. The fact that the parties may have agreed that they can "seek equitable relief in addition to all other remedies" does not mean that the court is obliged to hold that a fiduciary relationship exists or that anything is held on trust. The plaintiffs here are seeking equitable relief. Clause 15.6 confirms their entitlement to do that. The clause does not purport to create fiduciary relationships or to impose any constructive trusts. That is left to the court.

In the alternative Mr. Males argued that even if there was no pre-existing fiduciary relationship, the remedy is available in a breach of confidence case. In support of this he relied on the views expressed obiter in the Spycatcher case [1990] AC 109. I have already cited a passage from the speech of Lord Goff in which he said that there is "some ground" for saying that Mr. Wright held the copyright in the book, including the film rights, on constructive trust. Similarly Lord Keith expressed the view;

"There remains of course, the question of whether the Crown might successfully maintain a claim that it is in equity the owner of the copyright in the book. Such a claim has not yet been advanced, but might well succeed if it were to be." (page 263A)

And Lord Griffiths said;

"... I doubt if Peter Wright owns the copyright because as at present advised I accept the view of Scott J. and Dillon L.J. that the copyright in Spycatcher is probably vested in the Crown."

The reference in the latter passage to Scott J. is a reference to encouraging views expressed by that judge to be found at page 139 of the report. The similarly encouraging views of Dillon LJ are to be found at page 211 of the report. These passages must be read in context. In the Spycatcher case the Crown was invited to advance its claims in copyright (which would have required it to claim ownership, probably by constructive trust). It declined to do so. The views referred to above were therefore not only obiter, they were also expressed without the benefit of any argument from the defendants.

Support for this is also to be found in The Law of Restitution (4th Edition) by Goff & Jones which, at page 694, expresses the view that;

"The confidant may be declared to be a constructive trustee of specific assets, or a lien may be imposed over those assets. In determining whether to grant a proprietary remedy, the court should consider whether it is the appropriate remedy."

In support, the authors relied on LAC Minerals Ltd. v. International Corona Resources Services Ltd. (1989) 61 DLR (4th) 14, 16 IPR 27. In that case, the Supreme Court of Canada thought it appropriate to impose a constructive trust over land which the defendant had bought because he had been told in confidence that it might be gold bearing. On the other hand in Blake Scott V-C expressed the view that Lister v. Stubbs (1890) 45 Ch. 1 and Halifax Building Society .v. Thomas [1996] 2 WLR 63 would have precluded a finding of constructive trust in the case before him, despite the Privy Council's disapproval of Lister v. Stubbs in Attorney General for Hong Kong v. Reid [1994] 1 AC 324. Although LAC Minerals was cited to the Vice-Chancellor, he does not deal with it in his judgment.

I cannot say that I find this an easy topic. In Lister v. Stubbs the Court of Appeal was concerned with fraudulent commission made by Stubbs when acting as Lister's agent to purchase supplies for their business. Lister claimed that the commissions belonged to it on a constructive trust. The court unanimously disagreed. Lindley LJ expressed the view that, as an agent, Stubbs was obliged to account to Lister for the back-handers he had received but was not prepared to go further and say that the relationship of trustee and cestui que trust had been created. At no point in the judgements is it suggested that any relevant pre-existing fiduciary duty had been breached. It appears that the court viewed the case as one in which the plaintiff wanted a constructive trust to be created for the purpose of grafting consequential relief onto their cause of action. It is interesting to note that Lindley LJ expressed concern at the introduction of constructive trusts into what was really a simple commercial relationship between the plaintiff and the defendant. He pointed out that a constructive trust would mean that Stubbs' relevant assets would be taken out of the reach of his creditors if he became bankrupt and that wide ranging tracing claims might be possible.

Mr. Males argued that that case was very different to one of breach of confidence or breach of a directors' duty. He argued that not only has Lister v. Stubbs been the subject of disapproval at the highest level, but it is concerned with cases where a party attempts to create the fiduciary relationship for the purpose of obtaining wider relief. Even if that is impermissible, as Lister v Stubbs suggests, it has no bearing on cases where the fiduciary relationship already exists. Notwithstanding the views expressed obiter in Blake, I am persuaded that Mr. Males is right on this issue. Lister v. Stubbs can be distinguished from cases where there is a pre-existing fiduciary relationship. This is likely to be of importance in breach of confidence actions. Irrespective of the nature and extent of the fiduciary relationship between the directors and PLL, in most, if not all, cases where obligations of confidence arise, it will be in circumstances where the court will find that a fiduciary relationship exists also. The obligation of confidence gives rise to the fiduciary relationship, not the breach of that obligation. Even if the obligation of confidence arises expressly out of contract, normally the obligation will carry with it certain fiduciary duties. This parallels the position of a director towards his company. Although his employment may be governed by the terms of his contract of employment, the fact that he is appointed a director carries with it fiduciary duties. In my view in this case the obligations imposed on the defendants to keep the plaintiffs' information confidential gave rise to a fiduciary relationship. That relationship existed before any question of breach of confidence arose. In this respect it is not a Lister v. Stubbs type of case.

However the fact that a fiduciary relationship exists does not mean that all wrongful acts committed by the party owing the duty are to be treated as breaches of fiduciary duty nor, in particular, does it follow as a matter of course that a constructive trust comes into existence. As La Forest J. said in LAC Minerals:

"... not every legal claim arising out of a relationship with fiduciary incidents will give rise to a claim for a breach of fiduciary duty."

This passage was cited with approval in the judgment of Millett LJ ina recent but unreported decision of the Court of Appeal, Bristol & West Building Society v. Mothew.

Further, not all breaches of fiduciary relationships give rise to constructive trusts. In an article under the title Bribes and Secret Commissions in [1993] Restitution Law Review page 7, Sir Peter Millet said:

"When, then, is a fiduciary to be treated as held to be a trustee of money or property which has been entrusted to him by or for the account of his principal? The question is a familiar one which commonly arises in cases of agency. An agent is a person who acts for another; ... he may or may not be a trustee. ...

The position is not necessarily the same where money payments are concerned. An agent who receives money from or for his principal is not necessarily a trustee, even though he is a fiduciary. At law, the relationship between the agent and his principal is that of debtor and creditor. In equity, however, the relationship of trustee and beneficiary may be superimposed. ...

In other cases the question whether an agent is a trustee depends on all the circumstances and in particular the intention of the parties, express or inferred. There is no single test; the usual approach is to consider whether it is appropriate to superimpose a trust relationship onto the commercial relationship which exists between the parties; or whether it was contemplated that the agent should be free to treat the money as his own, in which case no trust relationship is created. It is fundamental to the existence of a trust that the trustee is bound to keep the trust property separate from his own and apply it exclusively for the benefit of his beneficiary. A right of the agent to mix his principal's money with his own and use it as part of his cash flow is inconsistent with the existence of the trust."

Although that article was particularly concerned with the position of an agent, the principles stated have wider application. The same point was made forcefully by Fletcher Moulton LJ in Re Coomber [1911] 1 Ch 723;

"[The plaintiff's mother gave a gift of her own free will to her son.] Under those circumstances what objection can be made to this transaction? It is said that the son was the manager of the stores and therefore was in a fiduciary relationship to his mother. This illustrates in a most striking form the danger of trusting to verbal formulae. Fiduciary relations are of many different types; they extend from the relation of myself to an errand boy who is bound to bring me back my change up to the most intimate and confidential relations which can possibly exist between one party and another where the one is wholly in the hands of the other because of his infinite trust in him. All these are cases of fiduciary relations, and the Courts have again and again, in cases where there has been a fiduciary relation, interfered and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them."

As Goff & Jones says, and Mr. Males accepted, in determining whether to grant a proprietary remedy, the court should consider whether it is the appropriate remedy in the circumstances of the case. In considering this, the court must bear in mind the possible effects of imposing a constructive trust. Not only will the plaintiff obtain priority over general creditors, he may recover profits made by the defendant, limitation periods may be different and the plaintiff may be able to obtain compound interest. It seems to me that in the LAC Minerals case there were special and very good reasons why the imposition of a constructive trust was appropriate. La Forest J. said that in breach of confidence cases there is considerable flexibility in remedy. He explained the imposition of a constructive trust in that case as follows:

"The appropriate remedy in this case can not be divorced from the findings of fact made by the courts below. As I indicated earlier, there is no doubt in my mind that but for the actions of Lac in misusing confidential information and thereby acquiring the Williams property, that property would have been acquired by Corona. That finding is fundamental to the determination of the appropriate remedy. ... The issue then is this. If it is established that one party, (here Lac), has been enriched by the acquisition of an asset, the Williams property, that would have, but for the actions of that party been acquired by the plaintiff, (here Corona), and if the acquisition of that asset amounts to a breach of duty to the plaintiff, here either a breach of fiduciary obligation or a breach of a duty of confidence, what remedy is available to the party deprived of the benefit? In my view the constructive trust is one available remedy, and in this case it is the only appropriate remedy.

... Much of the difficulty [in deciding whether the imposition of a constructive trust is appropriate] disappears if it is recognised that in this context the issue of the appropriate remedy only arises once a valid restitutionary claim has been made out. The constructive trust awards a right in property, but that right can only arise once a right to relief has been established. In the vast majority of cases a constructive trust will not be the appropriate remedy. Thus in Hunter [an unreported Canadian case], had the restitutionary claim been made out, there would have been no reason to award a constructive trust, as the plaintiff's claim could have been satisfied simply by a personal monetary award; a constructive trust should only be awarded if there is reason to grant to the plaintiff the additional rights that flow from recognition of a right of property. Among the most important of these will be that it is appropriate that the plaintiff receive the priority accorded to the holder of the right of property in a bankruptcy. More important in this case is the right of the property holder to have changes in value accrue to his account rather than the account of the wrongdoer. Here as well it is justified to grant a right of property since the concurrent findings below are that the defendant intercepted the plaintiff and thereby frustrated its efforts to obtain a specific and unique property that the courts below held would otherwise have been acquired. The recognition of a constructive trust simply redirects the title of the Williams property to its original course. The moral quality of the defendants' act may also be another consideration in determining whether a proprietary remedy is appropriate. Allowing the defendant to retain a specific asset when it was obtained through conscious wrongdoing may so offend a court that it would deny to the defendant the right to retain the property. This situation will be more rare, since the focus of the inquiry should be upon the reasons for recognising the right of property in the plaintiff, not on the reason for denying it to the defendant."

LAC Minerals does not purport to set out all the factors which should be taken into account in deciding whether or not to impose a constructive trust as a form of relief. But it does indicate some which are of significance. Although not binding, it makes eminent sense. None of the parties suggested to me that it was wrong.

What the plaintiffs are asking for is the imposition of a constructive trust over a part of the defendants business and assets. Unlike LAC Minerals, there is no question here of the defendants having diverted their business or assets, or any part of them, from the plaintiffs. Furthermore even if it is said that part of the defendants' business and assets have been contaminated by breaches of confidence, that contamination is small and technically inconsequential. In my view it would be quite wrong to impose a constructive trust over such a minor fraction. It was not clear to me how a constructive trust imposed on such a fraction would work. Who would decide what repairs or modifications should be carried out to equipment, who should pay for them, who should decide what to do with obsolete equipment and if AVCL was to be floated on the stock exchange, who would decide at what price and on what terms? I can see attractions in a suitable case of imposing a constructive trust over a complete discrete item of property but imposing such a trust over a part only raises additional problems. On the above grounds alone I would come to the conclusion that this is not a proper case for the imposition of a constructive trust.

However, since the imposition of a constructive trust is part of the equitable armoury of the court, the considerations which may affect the court's willingness to grant an injunction also have a part to play. Mr. Males suggested that if the court was unwilling to grant an injunction against use of confidential information, the imposition of a constructive trust becomes all the more necessary. I do not agree. Most of the reasons which have led me to refuse that type of injunctive relief, have made me come to the conclusion that this is not a case where it would be right for the court to exercise its discretion in the plaintiffs' favour by imposing a trust.

(4) Financial relief.

The plaintiffs seek damages and an account. I assume that the plaintiffs will have to consider whether they want to invite the court to order an account in lieu of an inquiry. They have not made an election yet. These are matters which will need to be addressed by the parties and their lawyers following consideration of this judgment.


 


Section 7: Conspiracy

Pleadings

The requirement of proper particulars in relation to the allegations of breach confidence has been referred to above. In the John Zinc case Edmund Davies LJ referred to the Palamisto General Enterprises S. A. v. Ocean Marine Insurance Limited case and the statement there that:

"where a party asserts his opponent's complicity in ... criminal misconduct, the case is pre-eminently one in which not only the R.S.C. (Ord. 18 r.12(1) and Ord. 72 r. 7(2)) but also fair treatment require that, so far as practicable, the matter shall be pleaded with particularity, so that the party accused may know what case he has to meet".

He went on to point out that even if pleaded allegations fall short of asserting criminal misconduct, where they impute conduct of a gravely improper character there is an equal need for clear particularisation. Conspiracy is both a criminal offence and a civil wrong which is actionable in damages. Perhaps even more than assertions of breach of confidence, it is dependent on allegations of gravely improper behaviour. The requirement of properly particularised pleadings is no less strict. Furthermore, as Mr. Mitchell for the defendants put it to me, in many cases it might be thought futile to consider the question of conspiracy because if the defendants are liable for having performed the unlawful acts which are an essential part of the charge of it is difficult to see what conspiracy adds, and if they are not so liable conspiracy is irrelevant. This is just such a case. Since in many cases an allegation of conspiracy, even if proved, adds nothing to what the plaintiff can recover, it is all the more incumbent on the plaintiff to ensure that the allegation is a proper one to make and maintain. No party should make unsupportable allegations of this nature. If it does, the court is likely to assume that the allegations are being advanced for no other purpose than to cast unpleasant aspersions on the defendant. In my view it is an abuse of process to plead such allegations in the knowledge that they are unsupportable. It is also an abuse to continue with them after their lack of support has been drawn to the pleading party's attention.

In paragraph 40 of the re amended statement of claim, the plaintiffs alleged conspiracy as follows:

"Further from at the latest 20th December 1993, each of the Defendants has conspired with each other of the Defendants to injure OSI and/or PLL in their or its business by unlawful means, namely the divers torts and/or breaches of contract and/or confidence and/or fiduciary duty by each of the Defendants committed on or after 20th December 1993 herein above pleaded. OSI and PLL are unable to give further particulars of the combination until after discovery and/or the administration of interrogatories save that they rely upon the fact and terms of the AVCL Licence as evidencing such combination. OSI and/or PLL rely upon the said torts and/or breaches of contract and/or confidence and/or fiduciary duty as the overt acts carried on in pursuance of the said conspiracy."

From this it appears that the only particulars of the unlawful conspiracy given are "the facts and terms" of the AVCL licence, that is to say the patent licence granted to AVCL by the Patent Owners. This is strange since there is no doubt that the Patent Owners were expressly allowed to licence AVCL under the terms of the PLA itself and there is nothing in the patent licence to AVCL which indicates or prescribes that PLL confidential information was to be used or any other wrongful act be committed. On the face of it, therefore, this does not seem to be a proper plea of conspiracy. Further, during his closing submissions, I asked Mr. Males whether the plaintiffs were suggesting that the granting of the patent licence was in any way wrongful. He said that they were not. They were merely relying on it to give a date for when the conspiracy commenced or was being pursued. Although the pleading purported to reserve the right to the plaintiffs to give further particulars after discovery or the administration of interrogatories, no such further particulars were proffered. When the plaintiffs opened their case before me they made no reference to conspiracy. During the trial, no allegations of conspiracy were put to any of the defendants' witnesses. It was not put to any of them that they intended to injure the plaintiffs.

Towards the end of the evidence stage of the trial, the defendants' solicitors, Messrs Bond Pearce, wrote to the plaintiffs' solicitors, Bristows Cooke & Carpmael, noting that no claim of conspiracy was made during the opening and commenting that it was "unclear whether any of the questions currently being put to [the defendants'] witnesses in cross examination are intended to go to the issue of conspiracy". They asked whether the conspiracy claim was being persisted in. Bristows, no doubt on their clients' instructions, replied on 2 August. They said that it had always been part of the plaintiffs' case that there was an actionable conspiracy, that it remained their position and that it would be addressed in their closing submissions. Mr. Mitchell drew my attention to the fact that serious claims in conspiracy are also being made in the US Proceedings. He submitted that the plaintiffs are using these proceedings in an oppressive manner against the defendants. He said that the defendants would wish the court to make findings in relation to the claims in conspiracy in this action because such findings may limit the degree to which the plaintiffs can cause further oppression to the defendants in the US Proceedings. It seems to me that it is not the function of this court to make findings here simply to assist parties in proceedings before foreign courts. I have no doubt that the courts in the United States are well able to make up their own minds on the issue of whether their court process is being abused as an instrument of harassment and oppression. On the other hand, the plaintiffs have chosen not to relinquish this claim before me and, in his reply speech, for the first time Mr. Males addressed these issues. Since they assert seriously improper behaviour by the defendants, I will consider them.

The law on conspiracy

In Rookes v Barnard [1964] AC 1129 the House of Lords indicated that there were two species of conspiracy; First are those where lawful means are employed to secure an unlawful end. For these it appears that a predominant intent to injure has to be proved. The second category consists of those in which unlawful means are employed. Although it was not entirely clear from their pleadings, the plaintiffs' closing submissions confirm that they only relied on the second type of conspiracy here.

Lonrho PLC v Fayed [1992] 1 AC 448 suggests that the essential elements of the tort of conspiracy to injure by unlawful means are as follows:

(1) an agreement between two or more persons;

(2) a purpose, but not necessarily the predominant purpose, of which is to injure the plaintiff by employing means which are unlawful; and

(3) acts done in execution of that agreement result in injury to the plaintiff.

There appeared to be broad agreement between the parties on the need to meet all these requirements. However there was disagreement on one point. The defendants say that the plaintiffs must prove that the relevant defendants intended to injure the plaintiffs. This is subjective. Although the plaintiffs accepted that there must be an intention to injure, they submitted that the conspiracy by the defendants to set up an AVCL manufacturing plant using PLL confidential information (although this latter was not suggested as being part of the agreement) was aimed and directed at PLL, and it could reasonably be foreseen that the plan would injure PLL. Intent to injure PLL may be inferred from the fact that such injury must have been a natural and probable consequence of the Defendants' actions. In effect they were arguing that the intention to injure is assessed objectively. In support of this submission they relied on the following extract from the speech of Lord Denning in Lonhro v. Shell (No. 2) (1981 - unreported):

"I would suggest that a conspiracy to do an unlawful act - where there is no intent to injure the Plaintiff and it is not aimed or directed at him - is not actionable, even though he is damaged thereby. But if there is an intent to injure him then it is actionable. The intent to injure may not be the predominant motive. It may be mixed with other motives ... It is sufficient if the conspiracy is aimed or directed at the Plaintiff, and it can reasonably be foreseen that it may injure him, and does in fact injure him." (plaintiffs' emphasis)

and from the statement of Viscount Maugham in Crofter Hand Woven Harris Tweed v Veitch [1942] AC 435, that a person is presumed to intend the natural and probable consequences of his own acts.

In my view this submission is bad in law. Conspiracy is an anomalous tort where intention to injure is one of the fundamental requirements. It is not simply another name for joint tortfeasance. If it really was the law that any combination between two or more persons which had the foreseeable result of injuring the plaintiff was to be treated as one in which that was the intention, then most cases of joint tortfeasance would also be conspiracies. This can not be right. What elevates joint tortfeasance to the level of the tort and crime of conspiracy is the motive of the actors. No doubt in deciding what they intended in fact, one starts with the presumption that they intended the natural and probable consequences of their acts and what was reasonably foreseeable. But at the end of the day one is looking to see if the conspirators were motivated, at least in part, by the desire to inflict injury. If they were not then there is no conspiracy.

(1) Agreement to use unlawful means:

It appears to me that the plaintiffs have made no attempt to show that there was an agreement between the relevant defendants to use unlawful means. As I have already said, there was no proper pleading to that effect and the point was not put to any witness but the way in which it is put in the plaintiffs' closing submissions confirms the point. For example, as against Mr. Anthony Galley, the plaintiffs say as follows:

"[Anthony Galley] accepted that he was aware of the plan to put an insurance policy in place in December 1993: See Day 23 page 64 line 19 to page 65 line 6:

"Q. It was very soon after this, within a month, when your father returned from his trip, that Aspect did determine to build their own manufacturing plant as quickly as possible. Is that right?

A. No. They determined to put an insurance policy in place, or with some lead time pieces of equipment, so that if OSI did cut off supplies, they would have some chance of being able to make lenses before they went out of business. I do not believe they determined to set up a manufacturing plant as quickly as possible.

Q. Was the position that you determined to set up the plant quickly, whether or not you were going to bring it immediately into production?

A. That is perhaps the way we were looking at it . ....................""

Similarly (a) as against Mr. Brooker and AVCL it was said that it was accepted that they were "fully aware of the plan to take out an insurance policy", (b) as against Mr. Morland it was said that he "admitted that he knew the grant of a Patent Licence to AVCL was part of a plan to put AVCL into manufacture", (c) as against Mr. Bevis the plaintiffs rely on the fact that "he accepted that he was present at meetings with the Galleys and Mr. Brooker on 15 and 16 December 1993 at which a decision was taken to go ahead and establish an AVCL manufacturing plant", and (4) that Mr. Atkinson "admitted that he was aware that from December 1993 onwards steps would be taken towards setting up an AVCL manufacturing plant". The fact that AVCL was going to set up a manufacturing plant was not and was not suggested to be an unlawful act. It was never suggested that the relevant defendants agreed to use unlawful means. The allegation of conspiracy falls at the first hurdle.

(2) Intent to injure:

No attempt was made to show that any of the defendants had an intention to injure the plaintiffs. I have no doubt that had such an attempt been made it would have failed. Mr. Mitchell submitted that it is plain that the Defendants had no intent to injure the Plaintiffs whatsoever. He set out in his closing submissions a long list of factors which, he submitted, showed that injuring the plaintiffs was never part of the defendants' intention. He said that the conduct of the defendants was purely defensive in order to protect their own legitimate interests and that it is impossible to infer any intent to injure or any conduct aimed or directed at OSI/PLL from the entire course of events which occurred. It is not necessary to go through all the points he made in support of these submissions. I agree that there was never an intention to injure. In view of the way in which Mr. Fruth and Mr. Lichtwardt treated the defendants, it might be said that the defendants must have wanted to harm OSI out of revenge if for no other reason. Even that suggestion does not accord with the facts. Not only were the personal defendants significant shareholders in OSI, so that its health was in their long term interests, but there were very good practical reasons why they did not wish to harm PLL/OSI. At all times they knew that the best way of securing a smooth handover of production to AVCL was to ensure that the latter company continued to be supplied with stock by PLL. When the final break came, AVCL was still not in production and it desperately needed continued supplies to stay in business. The obvious, and indeed only, source of these supplies was PLL. I have no doubt that the defendants continued to hope that they could calm Mr. Fruth down so that the companies could get back into business. Even after the Solent Hotel meeting that was the defendants' wish. That is consistent with the contents of the letter Mr. Geoffrey Galley sent to Mr. Fruth with the video recording of that meeting. Damaging AVCL would frustrate that hope.

It follows that the plaintiffs fail on this head also.

(1) Damage to the plaintiffs:

As Mr. Mitchell put it, it is impossible to see how PLL has been damaged by the only pleaded element of the conspiracy, namely the fact and terms of the AVCL patent licence. The plaintiffs argue that the establishment of a competitive plant by AVCL was necessarily damaging to PLL. Even if this had been pleaded, I do not accept that it would be relevant damage for the purposes of the allegation of conspiracy. The damage in issue is that which flows from the wrongful acts, namely the use, for example, of the microfilmed drawings. In my view, at its best, that saved the defendants a few weeks work. Had there been no determination by Mr. Fruth to cut off supplies, the defendants would have set up their own plant within the 18 months permitted under the PSA, and no damage would have been suffered by PLL at all. Furthermore I accept Mr. Mitchell's submission that, if anything, the defendants' actions reduced loss to the plaintiffs. If AVCL had experienced any significant delay in going into production, then given that PLL had clearly repudiated the PSA, PLL would have been liable for substantial damages to AVCL. If the plaintiffs have suffered any damage it is largely due to their own wrongful acts. The plaintiffs fail on this head of conspiracy as well.

I have come to the conclusion that this was an allegation which was always unsupportable. It served no legitimate purpose in the proceedings. It certainly should not have been pursued once the decision was taken not to challenge any of the defendants' witnesses in relation to it. I accept Mr. Mitchell's submission that it was oppressive to assert and maintain this plea.


 


Section 8: Copyright infringement

The allegations of copyright infringement are all set out in paragraph 40 of the statement of claim. By the date of the trial, there was no challenge to subsistence of copyright in any of the pleaded works. Similarly, there was no dispute that the pleaded copyrights were owned by PLL save in relation to the copyright in the MPS program. In relation to the latter, the same argument of joint ownership was advanced as was raised in relation to the equivalent confidence claim. For the reasons I have already given in the part of this judgment dealing with confidence, the defendants' argument on that point fails. It follows that all the pleaded copyrights belong to PLL. The dispute, so far as there is one, relates to infringement and relief.

(a) The computer programs:

(i) The Lens Design Program

It is said that AVCL and Mr. Anthony Galley have infringed PLL's copyright in this program by "copying the said work, both by reproducing the same (either in whole or a substantial part thereof) and by storing the same by electronic means". There is no dispute that there has been copying by reproducing the program but it is not conceded that there has been any copying by storing. The defendants argue that the Copyright Designs and Patents Act, 1988 ('the 1988 Act) requires an act of storing and that being in storage is insufficient. Mr. Waugh, on behalf of the plaintiffs, says that there is no justification for such a limitation.

The definition of infringement is to be found in section 17(1) and (2) of the 1988 Act which provides:

"(1) The copying of the work is an act restricted by the copyright in every description of copyright work; and references in this Part to copying and copies shall be construed as follows.

(2) Copying in relation to a literary, dramatic, musical or artistic work means reproducing the work in any material form. This includes storing the work in any medium by electronic means."

The words "an act restricted by the copyright" in subsection (1) refers back to section 16 of the Act, which, insofar as material, provides:

"(1) The owner of the copyright in a work has, in accordance with the following provisions of this Chapter, the exclusive right to do the following acts in the United Kingdom-

(a) to copy the work (see section 17);

...

and those acts are referred to in this Part as the "acts restricted by the copyright".

(2) Copyright in a work is infringed by a person who without the licence of the copyright owner does, or authorises another to do, any of the acts restricted by the copyright.

(3) References in this Part to the doing of an act restricted by the copyright in a work are to the doing of it-

(a) in relation to the work as a whole or any substantial part of it, and

(b) either directly or indirectly;

and it is immaterial whether any intervening acts themselves infringe copyright."

All of these provisions contemplate activity on the part of the alleged infringer. The statute gives the copyright proprietor the exclusive right "to do" certain "acts". Those acts include "to copy". The copyright is infringed by a person who "does" any of those acts. It is sufficient if he does the act in relation to a substantial part of the work. Furthermore the concept of activity is consistent with the subsequent subsections in section 17. Thus, in relation to an artistic work copying includes the making of a copy in three dimensions of a two-dimensional work and the making of a copy in two dimensions of a three-dimensional work^[92], copying in relation to a film, television broadcast or cable programme includes making a photograph of the whole or any substantial part of any image forming part of the film, broadcast or cable programme^[93], copying in relation to the typographical arrangement of a published edition means making a facsimile copy of the arrangement^[94] and copying in relation to any description of work includes the making of copies which are transient or are incidental to some other use of the work^[95].

The activity of putting something into computer storage involves making a copy, in digital form, of that thing. The recording medium may well be magnetic, as in a floppy disk or in a magnetic hard drive. However the first part of section 17(2) requires that reproduction must be in a "material form". To avoid any arguments that making a copy in the form of series of, say, magnetic locations is not reproducing it in a material form, the second part of section 17(2) provides that "this", i.e. reproduction in any material form, includes storing in any medium by electronic means. It does not affect the general requirement of these provisions that for a defendant to infringe he must have performed some activity. Being in possession of a medium on which a copyright is recorded, for example a floppy disk, is not of itself an act of infringement. On the other hand making the recording or lifting data into and out of storage can be.

It follows that I do not accept the plaintiffs' wider submission on copyright infringement. However the contents of the defendants' version of the Lens Design Program show that it has been altered at some stage to remove a reference to PLL and replace it by a reference to AVCL. Once that change had been carried out, which must have been without the permission of PLL, the program would have had to be 'saved', i.e. recorded so as to preserve it in its modified form for the future. That amounts to the act of storing and was an infringement of copyright.

(2) Computer routine entitled "procedure RAMP.EFP"

It appears that a copy of this was printed out by Mr. Anthony Galley when he was preparing the AVCL lens design spreadsheet. That was an act of unlicensed copying and constitutes an act of infringement.

(3) LENS0.PAS program

The only case of infringement raised in relation to this was the possession of a copy stored on Mr. Galley's computer. It was not said that the act of storing it was unlicensed. It was legitimate for Mr. Galley to have had a copy of this on his computer while he was will PLL. The mere possession of the stored program is not an infringement of copyright for the reasons given above.

(4) The MPS program

The acts of copying and storing are admitted. Infringement is proved.

In relation to all of these infringements, the defendants advanced no special reasons why normal relief by way of injunction and delivery up should not be ordered. I will therefore grant an injunction and order delivery up in respect of (1), (2) and (4) above. Financial relief will be considered hereafter.

(b) The manufacturing drawings

PLL alleges infringement of the copyright which subsists in the original drawings of its insert components, manufacturing equipment and component parts. A full list of such drawings is at Schedule A to the statement of claim. Infringement is said to have taken place by copying directly into the form of drawings used by the defendants or indirectly by taking dimensions from articles made from the plaintiffs' drawings and then using those dimensions in the production of the defendants' drawings. Mr. Pumfrey did not dispute that both of those forms of derivation amounted to copying of the relevant PLL drawings. Infringement by making the defendants' drawings therefore followed. He said that all such copying post July, 1989, the date when the 1988 Act came into force, was trivial since from that date onwards the plaintiffs could not complain of reproduction of their drawings in the form of three dimensional articles. In other words all vestiges of the previous law of industrial copyright infringement had been removed. This may well be true, but that does not alter the fact that acts of drawing to drawing infringement have been conceded or proved.

However of the 418 or so drawings the plaintiffs relied on, there were 8 which were drawn before 1 August, 1989. It is not disputed that copies of those drawings were used by AVCL and Mr. Geoffrey Galley to order or design equipment for use in the new production facility. As a result of the provisions of Schedule 1 paragraph 19 of the 1988 Act, the ability, which existed under the previous law, to bring proceedings for infringement of copyright in artistic works where the infringement consists of reproducing the work (e.g. a drawing) in the form of a three-dimensional part (e.g. a piece of machinery) is preserved in respect of pre August 1989 drawings. This is subject to two caveats. First, this type of infringement will cease to be actionable after 1999. Secondly, the licence of right provisions relating to unregistered design right in sections 237 to 239 of the Act apply to copyright in an equivalent manner. The effect of these provisions is as follows:

(a) The right to sue for drawing-to-part infringement continues for 10 years from the commencement date of the Act, i.e. from 1 August 1989 to 31 July, 1999.

(b) During the last five years of that ten year period, i.e. from 1 August 1994 to 31 July 1999, the infringer is entitled to a licence of right.

(c) In proceedings for infringement, if licences of right are available under these provisions, the defendant may, at any time before the final order in the proceedings, undertake to take such a licence.

(d) If he offers such an undertaking:

(i) no injunction shall be granted against him,

(ii) no order for delivery up shall be made, and

(iii) the amount recoverable by way of damages or on an account of profits shall not exceed double the amount which would have been payable by him as licensee if a licence of right had in fact been granted before the earliest infringement.

(e) In the first five years of the ten year period, i.e. until 31 July, 1995, no licences of right are available and, consequently, there is no special restriction on the copyright owner's right to seek relief by way of injunction, delivery up and damages.

In these proceedings, the defendants have undertaken to take a licence of right in relation to these 8 drawings. However although that will protect them from injunctive relief in the future and may put an upper cap on the damages they may be ordered to pay for infringements committed since 31 July, 1995, it does not affect the status of infringements committed on and before that date. It seems to follow that the copyright owner can seek delivery up and normal damages in respect of all equipment made in infringement on and before that date.

Some of the defendants' equipment was made before the critical date. Insofar as that equipment infringed copyright, the plaintiffs are entitled to normal financial relief. The extent of that relief is a matter which will have to be considered hereafter. As far as delivery up is concerned, once again this is a form of equitable relief, and the court retains a discretion, in exceptional cases, to decline to grant it. I have already explained why I have not felt it appropriate to order delivery up in relation to the confidential information issues in this case. All or most of those considerations apply just as much to the prayer for delivery up under the infringement of copyright claim. To those should be added two other features which point in the same direction. First, because of the provisions of Schedule 1 paragraph 19 of the Act, the defendants can now reproduce the 8 drawings by making copy parts and the plaintiffs can not seek delivery up. An order for delivery up would therefore only have the effect of removing from the defendants those items in their production lines which are old enough to fall within the unmodified form of copyright protection. A very small number of parts will be removed from one of the defendants' production lines but, subject to the inevitable delays in securing supplies, the defendants could go out tomorrow and order the identical replacement parts. Furthermore the identical, but younger, parts in other lines will remain. In addition although these parts only represent a very small percentage of the line, their removal will inevitably close that line down. This is likely to have a severe and quite disproportionate effect on the defendants. I do not think it is the function of the court to exercise its equitable jurisdiction in a way which causes much greater harm than is necessary to safeguard the legitimate interests of the plaintiffs. For these reasons I decline to order delivery up under this head.


 


Section 9: Design right

Introduction

In the twenty years prior to the passing of the 1988 Act, copyright lawyers found a new area in which to enforce copyright. The copyright in production drawings was argued to be infringed by the manufacture of three dimensional articles copied, directly or indirectly, from them. The era of industrial copyright had arrived. Litigation proliferated as manufacturers of mundane industrial articles and parts used the copyright in their production drawings to prevent competitors from copying their finished products derived from those drawings. Even if the copyright work consisted of no more than a drawing of two concentric circles on a piece of paper and the alleged infringement consisted of a washer made indirectly from it, copyright could be invoked to take the competing product off the market. It is hardly surprising that not everyone was persuaded that this was the proper place for copyright or that it was of benefit to industry. The 1988 Act effectively spelt the end of industrial copyright. However in its place it put a new quasi-copyright called design right which is to be found in sections 213 to 251 of the Act. The origin of this legislation can be traced to the Semiconductor Products (Protection of Topography) Regulations 1987^[96]. This, as its name suggests, provided for the protection of the topography, i.e. layout, of the circuits in semiconductors. This regulation was, in turn, based on a European Directive to the same effect^[97]. The new design right gives protection for a limited period against the copying of certain designs.

In this action the plaintiffs originally asserted that there were two groups of design rights which they owned and which had been infringed by the defendants. First design right was said to exist in certain production drawings created on or after 1 August 1989 (the commencement date of the provisions of the Act dealing with design right). The drawings were listed in two schedules annexed to the statement of claim. It was said that AVCL and Mr. Geoffrey Galley infringed these rights by reproducing or authorising the reproduction of the said designs by (a) having articles made to the said designs and by (b) making design documents for the purpose of enabling such articles to be made. Secondly unregistered design right was said to subsist in the designs of the plaintiffs' lenses. All the defendants were alleged to have infringed the latter design rights by making contact lenses which reproduce them. The defendants raised extensive defences to both categories of design rights. During the plaintiffs' opening, I was told that the claims in respect of the first group of designs were not being pursued. The claim in respect of the design of the PLL lenses was maintained.

According to section 213 of the 1988 Act, design right is a property right which subsists in an "original design". Although the wording used is very similar to that employed in the Registered Designs Act, 1949, the legislative origin of these provisions is quite independent of the 1949 Act. It cannot necessarily be assumed that similar expressions have similar meanings in the two statutes. In the case of design right, "design" is defined as meaning:

"any aspect of the shape or configuration (whether internal or external) of the whole or any part of an article."

The proprietor can choose to assert design right in the whole or any part of his product. If the right is said to reside in the design of a teapot, this can mean that it resides in design of the whole pot, or in a part such as the spout, the handle or the lid, or, indeed, in a part of the lid. This means that the proprietor can trim his design right claim to most closely match what he believes the defendant to have taken. The defendant will not know in what the alleged monopoly resides until the letter before action or, more usually, the service of the statement of claim. This means that a plaintiff's pleading has particular importance. It not only puts forward the claim but is likely to be the only statement of what is asserted to be the design right. In this case the relevant paragraph in the statement of claim is in the following terms:

"Further, unregistered design right subsists in the designs of the lenses set out in Schedule C hereto."

Although 19 different designs are listed in that schedule, only 13 were asserted to have been copied by the defendants. However this did not mean that just 13 designs were relied upon. For example one of the designs listed in the schedule was "D1 - Edge III Thin". This is the trade mark or name give by the plaintiffs to a family of lenses varying in power from minus to plus dioptres. Mr. Waugh, who argued this part of the case on behalf of the plaintiffs, said that the pleadings meant that what was sought to be protected was each of the lenses within each of the thirteen families identified in the schedule. This was over 200 lens designs. Mr. Pumfrey did not object to that and the case proceeded on the basis that the claims to design right were directed to each of those 200 odd designs. In relation to each of these, Mr. Waugh said that the design comprises: (a) the front surface dimensions of the lens; (b) the rear surface dimensions; and (c) the edge characteristics. It was said that together these features, many of which are determined for each power of lens by the lens designer, make up the lens design.

At one stage during the argument, I expressed doubt as to whether the detailed dimensions on which the plaintiffs were relying could really be 'designs' within the meaning of the Act. For example the -3.00 dioptre and -3.5 dioptre lenses in the plaintiffs' D1 - Edge III Thin range would appear to any normal observer to be identical. In fact, it would take sophisticated measuring equipment in the hands of a skilled technician to tell them apart. Surely they are a single design. They certainly look like the same design. Mr. Waugh said that this was not so. He said that the use of dimension is just another way of describing or defining the shape or aspect in issue. He argued that there was nothing in the Act to indicate that a shape defined by such detailed dimensions was excluded from protection. On reconsideration, I think Mr. Waugh is right. This is one of those areas in which it is necessary to bear in mind that the design right provisions are not derived from the Registered Designs Act, 1949. By section 1(1) of the latter Act, the word "design" is defined as meaning

"features of shape, configuration, pattern or ornament applied to an article by any industrial process, being features which in the finished article appeal to and are judged by the eye."

Furthermore the 1949 Act excludes from consideration features of shape or configuration which are dictated solely by the function which the article has to perform. As that Act and numerous decisions under it demonstrate, appearance is everything where registered design law is concerned. Although the same word "design" is used in relation to design right, its meaning is different. There is no reference in the relevant provisions of the 1988 Act to features which appeal to and are judged by the eye. The Act was intended to give protection to wholly functional designs. The worth and ingenuity of a functional design over designs of similar overall appearance may be due to its detailed relative dimensions. Its detailed shape will, because of the different dimensions, be different. The eye may not be able to distinguish the shapes but that does not mean that they are not different. That being so, it seems to me that it is not possible to exclude detailed dimensional shapes on the ground that they are not designs. This does not mean that mere changes in scale produce different designs.

The defendants do not dispute that design right, if it exists, is owned by the plaintiffs. But they run three defences. First it is said that the designs have not been copied. Secondly it is said that the features relied on are not protectable as a result of the "interface" provision of section 213(3)(b)(i) of the Act. Thirdly it is said that the designs, or any parts which may have been copied, are commonplace. I will consider each of these defences.

Copying

The owner of design right in a design has the exclusive right to reproduce the design for commercial purposes, inter alia, by making articles to that design (section 226(1)). Reproduction of a design by making articles to that design is defined by section 226(2) as meaning:

"copying the design so as to produce articles exactly or substantially to that design"

Design right is infringed by a person who does, or authorises another to do, anything which is the exclusive right of the design right owner without relevant permission (section 226(3)). To succeed on this case the plaintiffs need to show that their 200 odd individual lens designs have been copied by the defendants. It is not enough to show that the defendants have gone through an independent though very similar design exercise and have arrived at very similar designs, even if that process was undertaken to make a product which the public would accept as interchangeable. In the present case the defendants were aware, for example, that the PLL standard 55% Methafilcon design of lens had a base curve of 8.8 and an overall diameter of 14.2 mm, a nominal centre thickness of 0.12 mm at -3.00 dioptres and a power range of +5.00 to -8.00 dioptres. That is what is recorded in the schedule to the PSA. In taking some or all of those dimensions and feeding them into their spreadsheet, they were not copying the package of numerous dimensions which the plaintiffs assert constitute the total design in which their monopoly right resides. The plaintiffs have failed to prove that their individual lens designs were copied into the defendants' lens designs. The assertion of infringement fails at the first hurdle.

Furthermore to constitute an infringement the copying must be exact or substantially to the same design. Here the plaintiffs have put their case firmly on the basis that each of their lenses, differing from their neighbours only in fine dimensional details, is to a separate design. Mr. Fruth listed the relevant dimensions of the plaintiffs' lenses as: base curve, diameter, centre thickness, junction thickness, peripheral thickness, edge thickness, edge lift, optic radius, optic displacement, optic zone, peripheral radius, peripheral displacement, peripheral diameter, ramp radius, ramp displacement, ramp angle, ramp length, base curve radius, base curve diameter, base curve displacement, internal sag and external sag. A member of the public could not tell the design of one lens in a particular range from another with a different power in the same range by mere visual inspection. The fact that the defendants' lenses also can not be distinguished from the plaintiffs' on mere visual inspection does not prove that they are sufficiently close for the purposes of infringement. When a plaintiff relies on the most detailed and specific dimensions to support his claim to the existence of design right, he can only succeed on infringement if the defendants' designs are extremely close in design. Although that is the case with some of the defendants' designs it is not the case with many of them. However, in view of my finding in relation to copying, it is not necessary to go through all 220 designs to distinguish between those which are too close and those which are not.

In view of this finding, it would be possible to avoid consideration of the other defences which have been raised. However it appears to me that the nature and scope of the plaintiffs' monopoly claims are of significance not only to the defendants but to the contact lens industry in general. If the plaintiffs have enforceable design rights in their lens designs, it is likely that many other manufacturers have similar rights in their designs and anyone who wishes to copy another's product runs the risk of infringing design right. Although design right only lasts for ten years, that may well be the total effective life of most lens designs, since I was given evidence that lens designs are changed quite frequently.

The "interface" defence

Section 213(3)(b)(i) of the 1988 Act provides:

"Design right does not subsist in ... features of shape or configuration of an article which ... enable the article to be connected to, or placed in, around or against, another article so that either article may perform its function..."

This is sometimes referred to as the interface provision. It's original purpose was to prevent the designer of a piece of equipment from using design right to prevent others from making parts which fitted his equipment. As I read it, any features of shape or configuration of an article which meet the interface criteria must be excluded from being considered as part of the design right. Furthermore a feature which meets the interface criteria must be excluded even if it performs some other purpose, for example it is attractive. There is also nothing in the provision which requires the feature to be the only one which would achieve the proper interface. If a number of designs are possible each of which enables the two articles to be fitted together in a way which allowed one or other or both to perform its function, each falls within the statutory exclusion. Mr. Pumfrey argued that many of the features of the plaintiffs' lens design should be excluded from consideration by virtue of this provision.

Mr. Waugh, who argued this part of the case on behalf of the plaintiffs, said that this provision could have no application to the design of contact lenses. Even if all the features of his clients' designs are there to enable the lenses to fit on the eye and under the eyelids, section 213(3)(b)(i) is irrelevant. For the latter to operate the design features of the article in suit, i.e. the contact lens, has to be there to interface with another article. But, he said, an eye is not an "article" at all. It is part of the human body. The word "article" means something inanimate which is not and has never been alive. No support for this submission is provided by any of the dictionaries I have looked at but, in the end, I do not think that this is a matter of dictionary definition. What counts is the presumed legislative intent behind the provision. It seems to me that the subsection is drafted in wide terms to exclude all interface features. The word "article" is not intended to have a restricted meaning. It could just as well have been replaced by the word "thing". I can see no reason why it should be construed so as to exclude living or formerly living things. There is no self apparent policy consideration which justifies allowing, say, the features which enable a false hip to be fitted into the hip joint of a human to fall within the ambit of design right whereas the same features on a child's doll are excluded. I reject this submission.

The question therefore is, are there any features of the plaintiffs' lenses which enable the lens to be connected to or placed in, around or against the eye or the eyeball so that either article may perform its function. To answer this it is appropriate to have in mind what are the functions of the lens and the eye. The eye's primary function is to enable us to see. It is designed to allow light to be focused on the retina. To perform this function efficiently for as long a time as possible, it needs to display an ability to focus light. It must be able to stay open for much of the time yet be washed regularly to remove debris from its front surface. It must have eyelids which can move over its surface to perform the washing function and, at night, protect it. It must have a thin living membrane on its front surface, the conjunctiva, to ensure that it is repaired when damaged and is protected from infection. The soft contact lens's function (save for those which are employed solely for cosmetic purposes) is to provide a particular correction to the light focusing ability of the eye. It must also fit in the right location on the front of the eyeball over the pupil. It should allow sufficient oxygen to pass through it to reach the conjunctiva.

With these functions in mind, it is possible to look at the various features of the plaintiffs' contact lens. I can start with the back radius. Professor Efron gave unchallenged evidence in relation to this. He said that it has been determined over many years that a soft lens with a back optic zone radius of approximately 8.8 mm will provide a good fit to an 'average' eye with a central radius of

curvature of 7.9 mm. Such a lens is designed to fit onto the eyeball in such a way that the lens is free to move by a small amount on each blink. Lens movement is necessary to allow debris that may build up beneath the lens (and become a source of irritation and a potential trigger for an adverse toxic or allergic reaction) to be flushed out when the patient blinks. He also explained that in the case of a large diameter soft lens (greater than 14.00 mm) made to minimal thickness, a radius of curvature of between 8.6 mm and 8.8 mm will fit virtually all eyes because such lenses are in a sense 'forgiving' and will tend to drape over the eye. It is for this reason that certain lens designs are offered to practitioners in only one back optic zone radius, such as 8.8 mm. And he went on to explain how slightly different back radiuses are chosen to enable a proper fit between other designs of soft contact lenses and different eyeballs. There was no evidence to suggest that the back radius of the plaintiffs' lenses were chosen without the fit requirement in mind. I am sure they were. In any event, the subsection does not require that the designer should know that the features enable the interface, it is sufficient if they do so in fact. The back radius in each of the plaintiffs' lenses enables the lens to fit against the eyeball so as to allow the lens to perform its function of correcting the focusing ability of the eye to the desired extent and to ensure that it centres over the pupil. This feature is excluded from consideration under the subsection.

Professor Efron also gave unchallenged evidence in relation to the choice of the diameter of the soft lens. He said:

"... it is universally accepted in the contact lens industry that, for in-eye stability, a soft contact lens must be of a larger diameter than the cornea, and would generally fall within the range 12.50 mm to 15.00 mm. Because soft lenses typically 'drape' over the eye irrespective of the precise diameter of the cornea, a large diameter (14.00 mm to 15.00 mm) can be adopted for a lens that is intended to fit all eyes. A lens of, say, 12.50 mm in diameter will only properly fit the eyes of a small subset of patients who have especially small corneas, and in any case a larger lens will also generally provide a satisfactory fit for such an eye. However a disadvantage of making a lens with a diameter of 14.5 mm or greater is that the edge of a lens of this size can be readily seen against the white sclera of the eye. This might be a source of annoyance to many patients who do not wish to make it obvious to others that they are wearing contact lenses; that is, the lens is deemed to be cosmetically unacceptable. An effective and common compromise is to adopt a lens diameter of 14.20 mm, which is large enough to fit virtually all eyes, but small enough for the edge of the lens to be less visible due to the fact that the edge is 'masked' by the limbus (the transition zone between the cornea and sclera)".

On this evidence, the lens diameters chosen enable the soft lens to fit onto the eyeball and under the eyelids so as to achieve in-eye stability. They are excluded under the subsection.

From the optic zone outwards the plaintiffs' lens designs have a parallel lenticulated carrier ending in what is called a "CN bevel". The CN bevel is also known as the 'Conlish bevel' and is named after its inventor. The purpose or effect of the parallel carrier and CN bevel is explained both in the plaintiffs' brochures and in their advertising video. One of the former^[98] includes the following illustration of their edge design:



This is then compared with two other types of design apparently on the market. They are illustrated as follows:



The copy which is attached to these illustrations says:

"EDGE III lenses are finished with an anterior CN Bevel that places the edge apex down on the sclera for less lid interaction and greater comfort"

On the same page of the brochures there is the also the following illustration and text:



Another^[99] refers to these peripheral features and says that they provide "better centration providing better vision". In other words they help to ensure that the lens fits more accurately on the optical centre of the eyeball. The function of the CN Bevel is described as providing "close lens edge/scleral interface for minimal lid interaction ...". This also supports the view that this feature allows the lens to fit better within the eye with less likelihood of being disturbed by movement of the eyelid. A third advertisement states that these features give "consistent fitting characteristics with all lens powers"^[100].

In the OSI video, the advantages of the CN Bevel and parallel peripheral carrier are illustrated. An animated sequence shows how this part of the lens design enables the lens to sit stably on the front of the eye while still allowing the eyelids to move across it without turning up the edges. Dr. Sammons, one of the plaintiffs' witnesses, stated in his report that one of the salient points which comes out of the OSI video was that the:

"Lenticulated peripheral zone consists of parallel peripheral carrier and CN bevel which give thin edge and low mass and consistent fitting.

None of this was challenged nor was any suggestion made that it was in any way inaccurate. The detailed design of the CN Bevel and parallel peripheral carrier enables the lens to be placed in the eye and against the conjunctiva and helps the lens to perform its function of remaining in position over the cornea so as to ensure that its focus correcting abilities are properly employed. It also allows the lens to fit under the eyelids when the latter move. Again, this enables the lens to remain in position to perform its focusing function. These features also are excluded from consideration by the provisions of section 213(3)(b)(i) of the 1988 Act.

This only leaves in issue the centre thickness, optic zone radius and front curve of each lens.

Commonplace

Section 213(4) of the 1988 Act provides that:

"A design is not "original" for the purposes of this Part if it is commonplace in the design field in question at the time of its creation"

Mr. Pumfrey argued that all of the designs in suit are commonplace and unprotectable by design right. He said that the expression "commonplace" covered designs which were ordinary, nothing more than banal, and trivial. He said it covered an unsurprising combination of well-known features even if nobody had made that precise combination before. Of course this was challenged by Mr. Waugh. He said that the combinations of dimensions for each lens design was not shown to be used before. He said it was not permissible to divide up the designs into their component parts and then, by showing that each part was known in the trade, come to the conclusion that the combination was also. The combination of features which go to make up the full design relied on must be looked at as a whole. As such, none of the designs in issue here could be called commonplace.

The expression "commonplace" can be traced back to the European Directive upon which the original 1987 Semiconductor Products (Protection of Topography) Regulations was based. There is, therefore, no domestic material which can be used as an aid to construction on the basis of Pepper v. Hart [1993] AC 593 and it was not suggested by Counsel that there was any European material which helped either. On the other hand its origin does tell us something about its intended meaning. Semiconductor topographies are the detailed, highly functional, layouts of the layers of electronic connections inside an integrated circuit, or "chip". The layouts look rather like monochrome maps of the London Underground service, save that there are millions of lines and interconnections. Every semiconductor design team produces its own topographies, in the sense that the distribution of lines and connections will be their own particular choice to meet the functional requirements of the chip. In designing their layouts they will, no doubt, use certain conventional design considerations and functionally-conventional circuits - that is to say circuits which operate in a well known way although the actual lines and connections will be distinguishable visually from many other embodiments of the same circuitry. This can be likened to the plumbing which connects the hot and cold water taps on a bath to the hot and cold water tanks in a house. The connections are entirely common-or-garden but the actual direction and lengths of the piping will depend on the precise locations of the tanks and the bath and the intervening obstacles. If any new combination of well-known features was intended to be the subject of a monopoly, all semiconductor topographies would be protected, and the commonplace exclusion would be no exclusion at all. The same conclusion can be reached another way. It is to be assumed that the draughtsman of the European Directive was familiar, as all intellectual property lawyers are, with the concept of originality in copyright law. There it means "originated with the author without slavish copying from some preceding work". The Directive eschews adopting that concept alone in relation to semiconductor topographies. Instead it uses the expression "commonplace" which clearly envisages some objective assessment. This follows from the provisions of Article 2(2) of the Directive:

"The topography of a semiconductor product shall be protected in so far as it satisfies the conditions that it is the result of its creator's own intellectual effort and is not commonplace in the semiconductor industry. Where the topography of a semiconductor product consists of elements that are commonplace in the semiconductor industry, it shall be protected only to the extent that the combination of such elements, taken as a whole, fulfils the above mentioned conditions." (my emphasis)

Essentially the same words are to be found in the 1987 Regulations.

It is always undesirable to replace one ambiguous expression by another, and for that reason it is not right to redefine the word "commonplace" in the 1988 Act, but it seems to me that the flavour of the word is much along the lines suggested by Mr. Pumfrey. Any design which is trite, trivial, common-or-garden, hackneyed or of the type which would excite no peculiar attention in those in the relevant art is likely to be commonplace. This does not mean that a design made up of features which, individually, are commonplace is necessarily itself commonplace. A new and exciting design can be produced from the most trite of ingredients. But to secure protection, the combination must itself not be commonplace. That is what the European Directive and the 1987 Regulations say expressly and what is implicit in the 1988 Act. In many cases the run of the mill combination of well known features will produce a combination which is itself commonplace. With this in mind it is now possible to assess the 200 odd designs the plaintiffs rely on here.

OSI's advertising video bearing the title "Clinical Considerations in Edge Design" commences with the following statement made by Mr. Fruth:

"Eye care practitioners and researchers long ago settled on the basic parameters that worked best in soft contact lens designs - the range of base curves, cord diameters and centre thickness - and most manufacturers can produce the fundamental curves required in a workable contact lens. But we know from rigid lens experience that the ability to design a high quality edge and then turn it out consistently is the hallmark of an excellent laboratory."

During the course of the trial, most of the features of the plaintiffs lenses was analysed in detail. It is clear that, individually, all of them are well known and that all competent designers in the field have in the past had no difficulty in working out the correct dimensions to make good workable soft lenses. They pick and choose from the small range of available features, those which they want to use in their products. As Mr. Stern said, that is precisely what Mr. Fruth did in the early 1980's. He chose from existing designs on the market the particular features which he wanted in his lenses. Professor Efron gave extensive evidence on the lack of anything out of the ordinary in the plaintiffs' designs. He said that he was unable to identify any features that distinguish the plaintiffs' lenses from numerous other lens designs available on the market. He accepted that there were unique features about the moulded edge of these lenses, but this was an issue which he considered related more to lens manufacture than to lens design. I accept that evidence. If regard is only had to the combination of three remaining features of each lens design, they are a commonplace. Furthermore, even if I am wrong in relation to the exclusion of interface features, the plaintiffs' designs as a whole are commonplace. They do not qualify for design right protection.

For all these reasons, the plaintiffs fail on their design right case.


 


Section 10: Breach of fiduciary duty by Anthony Galley:

In the analysis of the history of the breakdown in the relationship between plaintiffs and the defendants, I have noted that Mr. Anthony Galley was sacked in a peremptory manner in April, 1994. The subsequent letter purporting to justify that course contained 28 grounds of alleged misconduct. Many of them were, on their face, absurd. I have already mentioned Sir Peter Pain's reaction to them. Many of the allegations in that letter were not advanced in the statement of claim but some new ones have now been added. PLL's case is that Mr. Galley was in breach or repudiatory breach of his contract of employment and it was entitled to dismiss him "for cause". If that is so then PLL was entitled to the benefit of a further year's protection under the non-compete provisions of that contract. On the other hand if he was sacked without cause, the non compete provisions died forthwith and Mr. Galley was entitled to a significant sum by way of severance pay. In the end, I think Mr. Fruth accepted that that was at least one of the motivations behind Mr. Galley's sacking. This comes out of the following passages of evidence:

"Q. The first thing that happened was that Mr. Galley was sacked; correct?

A. Terminated, yes.

Q. Only when he was sacked did you then say, "Ah, we will say we will call it a sacking for cause" and at that time he was handed the list of reasons for getting rid of him; is that right?

A. Correct.

Q. It was at that stage, and not before his dismissal, that he was, as you say, given an opportunity to deal with these accusations; is that right?

A. That is correct."^[101]

Mr. Fruth then accepted that he did not discuss the grounds for Mr. Galley's sacking with three directors, namely Mr. Atkinson, Mr. Bevis and Mr. Jones (a new appointee for whom Mr. Fruth acted as a proxy) and the cross examination proceeded:

"MR. PUMFREY: I am sorry, I miscounted the reasons for dismissal; I believe there are 28 of them. Do you consider it fair or proper to dismiss a man for 28 grounds without showing him the list of the grounds and without asking him for his comments on them before you dismiss him?

A. Yes, I do think it is fair under certain conditions.

Q. You see, Mr. Fruth, what you could have done was this: You could have constituted a board and you could, without dismissing Mr. Galley, have removed him as a director perfectly ordinarily. Did it ever occur to you to do that?

A. No.

Q. What you wanted to do was to bring his employment agreement to an end and what you did at the bottom of page 324 was suppose that by moving to characterize Mr. Galley's contract of termination as being for cause, bring Mr. Galley's anti-competition covenants into play; is that not right?

A. That was part of the decision, yes.

Q. And that is why we go through this extraordinary business of dismissing him first and then saying "and we will call it for cause"; is that not right?

A. No, that is not true."^[102]

The last answer is one I do not accept. It is not in dispute that PLL is entitled to rely upon valid grounds for the dismissal of Anthony Galley whether or not it was aware of them at the time of his dismissal: Boston Deep Sea Fishing & Ice Co v. Ansell (1888) 39 ChD 339, 352.

The grounds pleaded against Mr. Anthony Galley are set out below. I have taken the wording from the amended statement of claim but the allegations have been renumbered for convenience of reference.

"In repudiatory breach, alternatively breach of the Anthony Galley Employment Agreement... Anthony Galley:

(1) failed to devote his full business efforts and time to PLL. On average, Anthony Galley spent in excess of 1 day per week at AVCL engaged upon activities for the benefit of AVCL and to the detriment of PLL and in particular from at the latest or on about 20th December 1993 assisting AVCL to establish a manufacturing capability in competition with that of PLL;

(2) committed the [following] breaches of confidence ... [he]:

(A) established or sought to establish AVCL as a manufacturer of soft contact lenses:

(i) to precisely the same designs and/or specifications as the Lens Designs or some of them, namely those marked 1 to 12 inclusive of the Particulars of Lenses under paragraph 10 above;

(ii) using the PLL Confidential Information or some of it and/or the said Storage Media or some of them to provide AVCL with a manufacturing process the same or materially the same as that of PLL;

(B) asserted, inter alia, in:

(i) the course of a meeting... at the Solent Hotel on or about 25th April 1994 convened ... with senior employees of PLL ("the Solent Meeting");

(ii) their solicitors' letter dated 24th May 1994; and/or

(iii) the affidavits of Anthony Galley ... sworn herein;

that [he and others] are the owners of the PLL Confidential Information and Storage Media as at 30th September 1992 and that they intended to cause AVCL to produce contact lenses to the same designs and/or specifications as the [pleaded] Lens Designs using such information.

(3) committed the breaches of the Patent Licence Agreement [as follows], all of which breaches were to the detriment of PLL and its business;

(A) Purported to grant a licence dated 20th December 1993 of the Licenced Patents to AVCL ("The AVCL Licence") which was not at fair market value in that:

(i) AVCL was not required to pay any royalty whatsoever in respect of the first 1,000,000 lenses manufactured under the AVCL Licence

(ii) AVCL was only to pay a royalty of £0.10 for every licensed lens manufactured under the Licensed Patents and such royalty was to apply only to the quantity of finished lenses manufactured and did not include wastage associated with dry lenses not accepted at wet inspections;

(iii)When AVCL was obliged to pay such royalty there was provision for a minimum royalty of only £50,000 per quarter.

Such terms were more favourable to AVCL than the terms of the Patent Licence Agreement would have been to AVCL [sic. presumably this should have been a reference to PLL], inter alia, in that under the Patent Licence Agreement, PLL was required to pay:

(iv) a royalty at US $0.50 per lens in respect of all lenses manufactured using the Licence Patents which were sold by PLL;

(v) a royalty advance totalling US $800,000 within one month of execution of the Patent Licence Agreement;

(vi) a minimum royalty of US $1,000,000 for each of the years 1993, 1994 and 1995 and US $600,000 for 1996. The said royalty advance was not to be counted towards such minimum royalty payments;

(B) purported to give assistance to AVCL in the field of contact lens technology notwithstanding that AVCL was not duly or properly licensed as aforesaid. Such assistance has been provided since 20th December 1993 at the latest and continues at the date hereof and will continue unless Anthony Galley, Geoffrey Galley, Albert Morland, Ian Atkinson and Barrie Bevis are restrained from giving the same by this Honourable Court.

(4) in April 1994 wrongfully sought to procure the dismissal of Mr Ciaran Maher as an employee of PLL and/or to undermine confidence in Mr Maher by falsely suggesting that there were doubts about Mr Maher's loyalty and commitment to PLL;

(5) in or about April 1993 and without authority purported to amend the definition of "Covered Products" under the Purchase and Supply Agreement by adding thereto the Polymacon 38% water content disposable lens when as Anthony Galley well knew he only had authority from OSI as sole owner of PLL to make opportunistic sales of that product as and when there were sufficient supplies to AVCL;

(7) concealed the fact that he had made the said purported amendment to the definition of "Covered Products";

(8) concealed the fact and told deliberate untruths (inter alia, at point 8 of page 3 of his memorandum to Mr Lichtwardt of OSI dated 25th August 1993) to prevent OSI from knowing that:

(i) PLL was purportedly supplying the said Methafilcon 55% water content disposable lens to AVCL as a "Covered Product" under the Purchase and Supply Agreement;

(ii) the said Methafilcon 55% water content disposable lens was a different product from any agreed to be supplied under the Purchase and Supply Agreement and/or it was a product developed by PLL at PLL's cost;

(9) from October 1992 until in or about April 1994 deliberately failed to calculate "dry cost" and "wet cost" under Clause 3 of the Purchase and Supply Agreement in the proper manner and/or so as to produce the best price for PLL reasonably and properly obtainable, but rather made such calculations to show an improperly low, alternatively the lowest possible, price for AVCL to pay;

(10) caused or permitted PLL to make available its inventory of lenses to AVCL and further caused or permitted such inventory to be kept at AVCL's premises so that AVCL might draw down lenses at any time and without having or being required to pay therefor;

(11) permitted AVCL extended periods of credit;

(12) caused or permitted the administration and/or financial control of PLL and AVCL to become intermingled so that AVCL learned or had access to details of the finance and administration of PLL;

(13) failed to obey an instruction to recover or demand delivery by AVCL of the said inventory of PLL lenses held at AVCL's premises.

PLL reserves the right to add to the above particulars of breach after discovery and/or the administration of interrogatories."

I have thought it only right to set out this pleading in extenso. It is apparent that the plaintiffs have gone through the catalogue of complaints in their 18 April, 1994 letter and pleaded those which, presumably, they thought they had some hope of maintaining notwithstanding the firm but preliminary views expressed by Sir Peter Pain. Of the above grounds, those numbered (1), (5) and (9) to (13) were, in substance, a repetition of claims made in the April letter. How claim (11) - permitting AVCL extended periods of credit - could ever have been grounds for dismissal of Mr. Galley was never explained to me. It should be noticed that it was never pleaded, or asserted, that AVCL was not creditworthy or that the periods of credit exceeded what would be reasonable for a company which represented 50% of PLL's turnover, let alone asserted that the terms were so clearly at odds with Mr. Galley's duties to PLL that the court should intervene and substitute its own view of what credit arrangements would have been appropriate. Furthermore, in relation to the newly added grounds, it was never explained to me how what was said at the Solent Hotel meeting, in the Defendants' solicitors' letter of 24 May, 1994 or in Mr. Anthony Galley's affidavits sworn in this action (Ground 2(B)) could have been a breach of his contract since they all post-dated his sacking. Nor was it explained how undermining confidence in Mr. Maher (Ground (4)) could have been a breach of Mr. Galley's obligations. Further, as will become apparent when I deal with it as a separate issue below, there never was any realistic prospect of the plaintiffs making out the basic premise under Ground (3) (AVCL licence not granted at fair market value) let alone the assertion that, even if it had been made out, it would have justified dismissal. These, and all the other grounds, were the subject of evidence and cross-examination, some of it extensive. The manner in which the plaintiffs pleaded this part of the case is consistent with the way in which the whole action was conducted. I am left with the firm impression that no serious attempt was made by the plaintiffs to restrict the issues to those which were reasonably maintainable. The service of a statement of claim running, with appendices, to 80 pages with 60 prayers for relief was all part of the same process of subjecting the defendants to what appeared a broadside of litigation, even if some of the cannons in that broadside eventually proved to be of no more substance than pea shooters and, in some cases, were taken out of service as soon as battle commenced.

By the time of the closing speech, the plaintiffs had restricted their allegations to those grounds concerning (a) the setting up AVCL by use of confidential information. (b) Mr. Galley's divided loyalties in relation to AVCL, (c) undercharging of AVCL (d) the addition of the disposables to the PSA and the manner in which this was done (e) failure to implement the PSA properly. Under head (e) in his written closing submissions Mr. Males appears to have attempted to reintroduce one of the grounds in the April 1994 letter which had been omitted, presumably deliberately, from the statement of claim^[103] and a new ground which was also unpleaded^[104]. Even had there been anything of substance in these two new points, which there was not, I would not have acceded to an application by the plaintiffs to plead them at such a late stage had such an application been made. Grounds (4) and (11) were not pursued.

Duties and power of a director.

Mr. Mitchell argued that at the centre of the plaintiffs' case is a misunderstanding as to the relationship between the Board of Directors of a company and its shareholders. The plaintiffs' view is that Anthony Galley, and the Board of PLL, had an obligation to take instructions from Mr. Fruth or OSI because OSI had become the sole shareholder in PLL. This is a theme which ran through all of Mr. Males' oral and written submissions and much of the cross-examination. Most of the allegations of breach of fiduciary duty and contract against Mr. Galley are founded on this. Since Mr. Fruth was, from the middle of 1993, hostile to AVCL, it followed inevitably that anything Mr. Galley (and the other PLL directors, Mr. Bevis and Mr. Atkinson) did which helped AVCL was disapproved of by Mr. Fruth and would not have been sanctioned if his views had been sought. Because of the central importance of this issue to the allegations against Mr. Galley, I will deal with this first.

The Articles of PLL incorporates Table A to the 1985 Regulations. Article 70 provides that

"Subject to the provisions of the Act, the memorandum and the articles and to any directions given by special resolution, the business of the company shall be managed by the directors who may exercise all of the powers of the company..."

There were no relevant special resolutions and, at all material times (i.e. 30 September 1992 until 11 April 1994) the management of the business of the company was in the hands of Anthony Galley, Mr. Bevis and Mr. Atkinson. As Lord Greene MR said in Re Smith and Fawcett Ltd [1942] Ch 304 directors have a duty to act:

"bona fide in what they consider - not what a court may consider - is in the interests of the company, and not for any collateral purpose."

The plaintiffs in their written submissions, also referred me to an extract from the judgment of Pennycuick J in Charterbridge v Lloyds Bank [1970] Ch 62. The whole of the relevant passage in that is as follows:

"I must proceed to express a conclusion upon the contention that in creating the guarantee and legal charge, the directors [of Castleford] were not acting with a view to the benefit of [their company] That is a question of fact, and the burden of proof lies on the plaintiff company. As I have already found, the directors of Castleford looked to the benefit of the group as a whole and did not give separate consideration to the benefit of Castleford. Mr. Goulding contended that in the absence of separate consideration, they must, ipso facto, be treated as not having acted with a view to the benefit of Castleford. That is, I think, an unduly stringent test and would lead to really absurd results, i.e., unless the directors of a company addressed their minds specifically to the interest of the company in connection with each particular transaction, that transaction would be ultra vires and void, notwithstanding that the transaction might be beneficial to the company. Mr. Bagnall for the bank contended that it is sufficient that the directors of Castleford looked to the benefit of the group as a whole. Equally I reject that contention. Each company in the group is a separate legal entity and the directors of a particular company are not entitled to sacrifice the interests of that company. This becomes apparent when one considers the case where the particular company has separate creditors. The proper test, I think, in the absence of actual separate consideration, must be whether an intelligent and honest man in the position of a director of the company concerned could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company"

It is perhaps unfortunate that the plaintiffs only cited the last half sentence of this passage beginning with the words "whether an intelligent ...". The whole passage is important and suggests that, absent some special provision in the Articles, the director's duty is to his own company first and foremost. Nevertheless the plaintiffs said that a 100% shareholder has a right to give informal directions to the board of directors. I assume by that by this the plaintiffs meant that if the shareholder gives such a direction, the director is obliged to follow it and that failure to do so is a breach of fiduciary duty to the company.

Although Article 70 of table A provides that shareholders may by special resolution direct the directors to exercise their powers in a particular way, the plaintiffs say that where, as in this case, a company has a 100% shareholder, it is possible for that shareholder to give a direction to the Board of Directors without the need to go through the formality of passing a special resolution. They relied on Baroness Wenlock v River Dee Co. [1883] 36 Ch D 675 in which at pages 681-2 Cotton L J stated that:

"... the court would never allow it to be said that there was an absence of resolution when all the shareholders, and not only a majority, have expressly assented to that which is being done."

And on Re Duomatic Ltd [1969] 2 Ch 365 in which at page 373 Buckley J. stated:

"... where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."

Further they said that it is established that unanimous consent without a meeting is effective in circumstances where legislation requires a special resolution, relying for this purpose on Ho Tung v Man On Insurance Co Ltd [1902] AC 232, PC; Cane v Jones [1980] 1 WLR 1451, [1981] 1 All ER 533; Re Home Treat Ltd [1991] BCLC 705. The conclusion they draw from this is that it was open to OSI as PLL's 100% shareholder to give a direction to the Board of Directors as to how PLL's business was to be run. Provided such a direction was made clear to the Board, it will have the effect of a special resolution authorising an ad hoc alteration to the Articles of Association so as to limit the directors' authority to carry on the business of the company as they saw fit.

Even if the plaintiffs' view of a director's duty is correct, it would only come into play when the 100% shareholder has expressed a firm view as to what course the company should take (e.g. Ground (13) - failure to obey an instruction to recover stock from AVCL). In all other cases, the directors must do what the Articles require, namely manage the company bona fide in what they consider is the interests of the company.

But, in my view, the plaintiffs' analysis is quite wrong. The cases on which the plaintiffs rely demonstrate that when a director acts in accordance with the wishes of all the shareholders, it is not possible to impeach his actions on the grounds that a resolution supported by the shareholders has not been passed. In such a case the director is doing what all the shareholders want, it is only the formality which has not been complied with. They throw no light on the question of whether, as the plaintiffs assert, the 100% shareholders have a right to order the director to act in a particular way and he has an obligation to obey such an order absent compliance with the formal requirements of the Articles.

As Pennycuick J said in Charterbridge, each company in a group is a separate legal entity and the directors of a particular company are not entitled to sacrifice the interests of that company. Their obligations are to put the interests of their own company first. They must not act for an improper purpose. In carrying out their duties they are entitled to take into account the interests of present and future shareholders, employees, customers and creditors. But although the interests of these individuals can be taken into account, absent special provisions in the Articles, none of them can order the director to act in any particular way. The way in which group interests are to be taken into account by directors is discussed in Tolley's Company Law Vol 1 at H5027. Having set out the above cited quotation from Fawcett, the authors continue:

"It follows that the directors of a parent company do not owe any duties to a subsidiary, at least if the subsidiary has different directors (see Lindgren v. L & P Estates Limited [1968] Ch 572); and that a director of a subsidiary owes his duties as such only to the subsidiary and cannot be compelled to exercise his powers in accordance with the parent company's wishes, at least if the subsidiary is not wholly-owned by the parent (see Pergamon Press Limited v. Maxwell [1970] 1WLR 1167)"

I do not read that as meaning that the director of the subsidiary can be compelled to abide by the parent company's wishes where the parent owns 100% of the subsidiary's shares. In principle it seems to me that a director's duties to his company are the same whether or not the company is a subsidiary of another and whether or not, if it is a subsidiary, it is wholly-owned. The relationship to other companies in the group, and in particular the parent, are no doubt matters which he can legitimately take into account in deciding what is in the short and long term interests of his company but at the end of the day his duties are to his company not the parent. If the parent is not happy that the director of a subsidiary gives sufficient weight to its wishes or views it has a number of courses open to it; it can pass a special resolution obliging the director to act in a particular way, it may be able to change the Articles so as to accord its wishes higher priority, it may, through proper mechanisms, remove the director from office and replace him by someone who is likely to be more sympathetic (although even he will still be obliged to put the interests of the subsidiary first) and, if all fails, it can decide that the considerable commercial advantages of having that part of its business run through a subsidiary should be abandoned and it can absorb it into its own business.

In this respect it is interesting to note what Anthony Galley wrote to Mr. Fruth in August 1993, when the question of the 38% disposable was being discussed:

"... once [AVCL] were granted the right to sell [the 38% product], they moved ahead with a product launch and invested in various marketing and support material. Before doing this, they sensibly asked for some confirmation of their right to sell the product. You would have done the same thing i.e. you would not invest in selling a product that could be withdrawn at no notice for no reason. Extending the contract was a normal business action and was in no way connected to my interest in Aspect.

... As far as my authority to actually extend the contract is concerned, since I signed the original contract on behalf of PLL, I must have the right to extend it. I did check with you first. If you wish to make certain restrictions on which I can and cannot do at PLL, then you must make them clear to me or change my position."^[105]

Mr. Galley's position and authority was not changed until he was removed from office.

I accept Mr. Mitchell's submission that the plaintiffs have overlooked the fact that OSI and PLL are separate companies. The plaintiffs appear to equate the interests of OSI with those of PLL. This was exemplified by Mr. Fruth's evidence relating to the 38% disposables. He said:

"Mr. Galley and I did not discuss, nor did I approve, any formal amendment of the Covered Product definition to include the 38% flex wear lens. Such supply to AVCL was to be on an opportunistic basis only. There was to be no obligation on either party. There is a significant distinction between the supply of lenses on an ad hoc or opportunistic basis that is determined by OSI and only occurs when it is in OSI's best interests, and an amendment to the Covered Product definition. For example, only the latter could give AVCL any possible right to order such lenses pursuant to the Supply Agreement. I saw no reason why OSI should grant AVCL such a contractual right. I believed that market demands would continue to increase and that PLL's capacity to meet growing demands would be insufficient. My decision to supply AVCL with the 38% flex wear lens on an opportunistic basis only was therefore mainly influenced by the temporarily available supply of such PLL lenses."^[106]

Although I have already held this evidence to be unreliable in so far as it says that Mr. Fruth only agreed to opportunistic sales, it does reflect particularly well his view that PLL and its directors had an obligation to consider the interests of OSI only. No doubt in many areas it would be legitimate for PLL directors to conclude that the interests of PLL and OSI are similar. But they are not the same. In the interest of PLL's business it was legitimate for the directors to consider the position of both of its customers, OSI and AVCL. They were entitled to make their own assessment of how best to deal with those customers. Acting in a way which suits or helps a customer, whether by extending lines of credit, making deliveries in a more convenient manner, deciding to supply new products or setting a price which enables the customer to grow and prosper is not wrongful as long as the purpose is to benefit PLL. If the plaintiffs say that the directors, and particularly Mr. Anthony Galley, have breached their obligation to PLL, it is for them to prove it, always bearing in mind that the court will be reluctant to substitute its view, based on the limited material available during a trial, for the views of directors who may, and in this case were, steeped in the company's business over a long period. The court must approach this issue on the basis that there is a significant risk that it has only a partial picture of the company's business, trading conditions and prospects while the directors had the full picture.

This leads to a related matter. A major issue in the trial was Mr. Anthony Galley's alleged conflict of interest. It was said that instead of serving PLL he was giving priority to his position as a director of AVCL. The plaintiffs' submissions on this point started with the statement of Lord Cranworth L C in Aberdeen Railway Co v Blaikie Bros [1854] 23 LT (OS) 315, HL:

"... no one, having [fiduciary] duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect."

The plaintiffs conceded that in principle it is possible for a company to relax the rule against conflict of duty and interest, provided there is full and frank disclosure of all material facts. Thus in Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 at page 636, Upjohn LJ said:

"The rule ... is one essentially for the protection of the person to whom the duty is owed. Thus the company is entitled to the undivided loyalty of its directors ... But the person entitled to the benefit of the rule may relax it, provided he is ... sui juris and fully understands not only what he is doing but also what his legal rights are, and that he is in part surrendering them."

This issue of a fiduciary's divided loyalties has been considered again recently by the Court of Appeal in the Bristol & West Building Society case (supra). Millett LJ said:

"A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other: see Clark Bouyce v. Mouat [1994] 1 AC 428 and the cases there cited. This is sometimes described as "the double employment rule". Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the Society can complain. It knew that the Defendant was acting for the purchasers when it instructed him. Indeed, that was the very reason why it chose the Defendant to act for it. The potential conflict was of the Society's own making: see Fiduciary Obligations (1977 ed.) by Finn p. 254, Kelly v. Cooper [1993] AC 205. ...

That, of course, is not the end of the matter. Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other: see Finn (op. cit.) p. 48. I shall call this "the duty of good faith". But it goes further than this. He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other. He must serve each as faithfully and loyally as if he were his only principal.

Conduct which is in breach of his duty need not be dishonest but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care. This is because the principle which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer. I shall call this "the no inhibition principle". Unless the fiduciary is inhibited or believes (whether rightly or wrongly) that he is inhibited in the performance of his duties to one principal by reason of his employment by the other his failure to act is not attributable to the double employment.

Finally, the fiduciary must take care not to find himself in a position where there is an actual conflict of duty so that he cannot fulfil his obligations to one principal without failing in his obligations to the other: see Moody v. Cox and Hatt [1917] 2 Ch. 71; Commonwealth Bank of Australia v. Smith (1991) 102 ALR 453. If he does, he may have no alternative but to cease to act for at least one and preferably both. The fact that he cannot fulfil his obligations to one principal without being in breach of his obligations to the other will not absolve him from liability. I shall call this "the actual conflict rule". "

There are two factual assertions underlying most of the plaintiffs' allegations. The first is that Mr. Anthony Galley had divided loyalties and that OSI, and by inference PLL, were unaware of the closeness of his relationship with AVCL. The second is that there were actual conflicts between the duty Mr. Galley owed to PLL as its managing director and the duty he owed to AVCL as one of its directors. The first of these is based on the evidence of Mr. Fruth. I have considered that already. It was, in all material respects, untruthful. PLL and OSI always knew of Mr. Galley's position within AVCL and the extent to which he assisted AVCL. Neither PLL nor OSI required him to relinquish his position with AVCL, the conflict of interest, if there was one, was of OSI and PLL's own making. The second is concerned with actual conflicts of interest. With the possible exception of the breach of confidence allegations against Mr. Galley, there never was such a conflict or, if there was, it was resolved by Mr. Galley in PLL's favour. Mr. Galley to the very end put the interests of PLL first. This also is an issue which I have addressed at length above. It is true that he did not accede to Mr. Fruth's requests to take steps designed to harm AVCL but in so refusing, I have no doubt that he was acting in what he saw as the interests of PLL. He knew that AVCL had a right to go off and set up its own production facilities. Throughout he wanted to ensure that if that was done it would be done in a way which would be as beneficial to PLL as possible or, if not actually beneficial, would cause PLL the least possible disruption. Furthermore, as the analysis of the history of this dispute makes clear, Mr. Galley was the individual who worked at trying to prevent AVCL from going its own way. As part of that he was, properly in my view, unwilling to treat AVCL in a way which made such a parting of the ways more likely. In particular he treated AVCL as a valued customer, as it was, and resisted all attempts by Mr. Fruth to cripple its business. That included refusing to comply with instructions which he reasonably believed would require PLL to act in breach of contract and would inflict significant damage on AVCL. I can now turn to the individual allegations made against Mr. Galley in this part of the case.

Ground (1) - Failure to devote his full business efforts and time to PLL.

For reasons already given, this fails on the facts.

Ground (3) - Breaches of the PLA

As noted above, clause 11.2 of the PLA allows the Patent Owners (i.e. the Galleys, Mr. Morland, Mr. Atkinson and Mr. Bevis) to give assistance to other persons in the field of contact lens technology but only if they are licensed under the Galley patent. Clause 11.1 provides that the Patent Owners will only license the patent at a fair market value. The plaintiffs' argument is, therefore, that the licence to AVCL was not at a fair market value and, as a consequence, the Patent Owners were contractually debarred from assisting AVCL. Once this is understood, it will be realised that the plaintiffs' pleaded case is hopeless. They allege that the terms offered to AVCL were not fair in certain respects because the terms were better than those given to PLL in September, 1992. However the PLA does not included a most favoured licensee provision and PLL cannot rewrite clause 11 to produce the same effect. Comparing the terms of AVCL's licence with those which had been granted to PLL two years earlier goes no way to showing that the former were not at a fair market value. The plaintiffs failed to produce any evidence of what a fair market value would have been in late 1994. For all I know, the competition in the market and onward technical progress might have meant that the liquid edge process was much less profitable or valuable in 1994. Furthermore the future is in disposable lenses and Mr. Lichtwardt said that PLL would have been prepared to offer AVCL a lower royalty for them. Even though I do not believe that PLL would have been prepared to do anything of the sort, I am prepared to accept that a lower royalty might have been fair for high volume sales of disposables. The only other point relied on by the plaintiffs was that AVCL had not paid any of the royalties due and therefore the licence was a sham. This was not pleaded. In any event it was not made out on the facts. The reason for the non-payment of royalties has already been explained. As noted already, the royalty obligations to Mr. Morland, Mr. Atkinson and Mr. Bevis have been shouldered personally by Geoffrey Galley until AVCL has the funds to meet its contractual obligations. Mr. Anthony Galley was cross-examined on the fair market value point. His evidence was that in fact the total royalty to be paid by AVCL would exceed that to be paid by PLL. I accept that evidence. So, even had the plaintiffs' pleadings been to the point, they would have failed on the facts. In my view this was a hopeless plea.

Grounds (5), (6), (7) and (8) - Issues relating to the alteration of "covered products".

I have already pointed out that I do not accept the basic assertion underlying these pleas, namely that OSI and Mr. Fruth were not told about the expansion of the definition of covered products in the PSA. Furthermore I do not accept the assumption inherent in this that Mr. Anthony Galley needed permission from Mr. Fruth. The PSA was signed on behalf of PLL by Mr. Galley. Potentially it covered a period of trading lasting ten years. The evidence shows that companies are always putting revised designs of products on the market. It was clearly in the interests of PLL to ensure that its customers continued to sell products which met current market demands. I cannot see how it could have been contrary to the interests of PLL to allow its customers to have new and more saleable designs. In the case of AVCL this meant, where necessary, modifying the scope of the PSA so as to take account of such new products. Indeed, I do not recall at any stage it being put to any of the defendants' witnesses that the modification of the PSA to change the definition of current 'covered products' was contrary to PLL's interests. As such, I can not see how it could have been a breach of Anthony Galley's duties to his company to agree such a modification. No doubt it would have been proper for him to bear in mind the interests of his other customer and shareholder, OSI, also. But in the end the question is not whether such a course was clearly contrary to the interests of OSI but whether it was in the interests of PLL. The plaintiffs have failed to satisfy me that it was not. They have also failed to satisfy me that in modifying the PSA, Anthony Galley was acting mala fide or for an ulterior and illicit purpose.

Furthermore, even if Mr. Galley had decided not to disclose the details of his modification of the PSA to Mr. Fruth and OSI, it is difficult to see how that could be a breach of his duty to PLL. Once Mr. Fruth's hostility to AVCL became apparent, I do not consider that it would have been wrong for Mr. Galley, vis a vis his duty to PLL, to soft-pedal the question of amendment to the PSA. On the other hand, having agreed with AVCL to supply them with disposables, it was both in AVCL's and PLL's interest, to honour that and ensure that AVCL had a guarantee of continuity of supply. It is not in dispute that the formal document amending the PSA was not produced until late in 1993 and was back-dated. However I did not understand there to be any dispute that the agreement to add disposables as covered products was made in the spring of 1993. It was only the formal documentation which came later. In my view nothing turns on this.

These allegations fail.

Ground (9) - Deliberate failure to calculate dry and wet costs and deliberate undercharging of AVCL

Even if Mr. Galley's calculations of the price to charge under the PSA were incorrect, and the plaintiffs have not satisfied me that they were, I do not accept that that would necessarily have been a breach of his duty to PLL. Two accountancy experts were called to give evidence as to how the pricing formula under the PSA should be carried out. Mr. Korn, a partner in Blick Rothenberg, was called for the plaintiffs. Mr. Phillips a partner in Price Warterhouse was called for the defendants. Subject to one matter, neither side attacked the qualifications or competence of the other side's witness. Both were clearly able accountants and tried to help the court although Mr. Korn was somewhat more combative than Mr. Phillips and appeared to approach the evidence giving process as if it was his duty not to give any quarter. Both gave their views of the scope and effect of the costing provisions of the PSA. In so doing each had to make certain assumptions, for example that certain R & D expenditure related to dry processing of lenses. The following is an extract taken from the end of Mr. Korn's cross-examination:

"MR. MITCHELL: One final question, Mr. Korn. Do you agree that on the assumption which Mr. Phillips has made, he has come to a conclusion which a reasonable accountant could come to on his figures?

A. No, sir.

Q. You do not agree with that?

A. No, I do not agree."

This was an unfortunate answer which reflected more on Mr. Korn than on Mr. Phillips. I came to the conclusion that well qualified accountants could reasonably come to the conclusions that both of these gentlemen came to. Mr. Phillips explained how he came to a price under the PSA which was, of course, almost identical to that in fact charged by Mr. Galley. Mr. Korn came to a higher price. More accurately he came to three different sets of higher prices because he modified his position on a number of occasions as a result of Mr. Phillips' views. This in itself was not surprising. The ambiguity of the PSA in this regard was not in dispute. As Mr. Korn accepted, the agreement was susceptible to a number of interpretations from an accounting point of view^[107]. Neither Mr. Korn nor Mr. Phillips attempted to justify the £1.20 or £1.57 put forward by Mr. Lichtwardt. The variety of prices arrived at by these two expert witnesses reflect the fact that the pricing structure set out in the PSA was not precise. There was much room for honest differences of opinion as to the application of its provisions. Even had Mr. Galley's calculations been inaccurate, there was nothing which led me to believe that in carrying them out he breached his fiduciary duty to PLL. Mr. Galley disclosed to OSI the way in which he calculated the price to be charged to AVCL. Until the disputes between the parties became serious in the second half of 1993, there was no criticism of them. Furthermore this attack was made all the weaker by Mr. Lichtwardt's and Mr. Fruth's evidence that once a price had been calculated under the mechanism specified in the PSA, it was to be expected that PLL and AVCL would negotiate down from that figure.

It seems likely that the plaintiffs realised that if Mr. Galley got the calculations wrong that alone would not be conduct justify peremptory sacking and they never alleged otherwise. It is, no doubt, for that reason that the pleaded allegation is that his failure to calculate the costs correctly was "deliberate" and done for the imporper motive of pushing the price to AVCL down as low as possible. The evidence on how Mr. Galley calculated the prices and why he excluded certain figures was extensive. The plaintiffs never came close to making out their pleaded case of deliberate miscalculation and undercharging.

In my view the plaintiffs have failed to prove any breach of duty under this head.

Ground (10) - leaving inventory at AVCL's premises.

There was no dispute that Mr. Galley arranged for stock to be kept on AVCL's premises and had done so for some time and that AVCL drew down lenses from it. His evidence on this was simple, PLL did not have enough space to keep the stock and it was therefore in PLL's interest to use space storage which was available at AVCL. The plaintiffs' closing submissions in relation to this are as follows:

"It was suggested by Anthony Galley that there was not sufficient storage space at PLL to store the inventory. However this suggestion was refuted by both Mr. Lichtwardt and Mr. Maher in cross examination. Mr. Lichtwardt and Mr. Maher gave evidence that space could have been made available at PLL for the stock held at Berkhamstead particularly since some inventory was already held at PLL. Indeed Mr. Brooker gave evidence that the inventory held at Berkhamstead, about 2.5 months stock, would only have required a storage area of about 30 yards by 15 yards."

The second sentence in this is incorrect. Everyone agreed that there was insufficient storage space, the only point made in answer was, as stated, that storage space could have been found at PLL. No attempt was made to suggest that what Mr. Galley did in this regard was harmful to PLL. It was not suggested, for example, that it would have been cheaper to rearrange the layout of the PLL premises to accommodate stock there instead of making use, at no cost, of the space at AVCL.

This was a hopeless allegation. It should neither have been made nor maintained.

Ground (12) - Intermingling of the administration and financial control of PLL and AVCL

Besides the fact that this was always known to PLL and OSI, it was not seriously suggested that it caused or was likely to cause any harm to PLL. On the contrary, Mr. Galley's evidence was that it was the most cost effective method of providing these services to PLL. I accept that evidence. This also was a hopeless allegation which should not have been made or maintained.

Ground (13) - Failure to obey an instruction to recover or demand delivery of stock from AVCL

I did not understand this to be maintained in the plaintiffs' closing submissions. In any event it was bad on the facts. For reasons I have already given, Mr. Galley was not obliged to obey instructions from outside PLL. There was no material which would lead to the conclusion that in this respect Mr. Galley had breached his fiduciary duty to the company.

Ground (2) - Committing breaches of confidence.

I have left this ground to last because it is the only one which has caused me any concern. Because of the plethora of points raised against Anthony Galley, it is necessary to see what is actually pleaded against him under this head. There is a risk that the plaintiffs' success in relation to some of its assertions of breach of confidence will be assumed to apply equally to all defendants and that all are equally liable. However this is not the case which Anthony Galley has to meet. For this part of the case, I am concerned with what Anthony Galley did before he was sacked, not what he did thereafter. In relation to this period, the allegations of breach of confidence levelled at him are quite narrow. This is not surprising because, in large part, he played no part in putting AVCL's "insurance policy" in place. Although in large measure he knew what was going on, his primary concern was always the health of PLL.

The plaintiffs' statement of claim pleaded the case under this head in the broad terms set out in Ground (2A) above. That was the subject of a request for further and better particulars. The request was as follows:

"Of "using the PLL Confidential Information or some of it and/or the said Storage Media or some of them to provide AVCL with a manufacturing process the same or materially the same as that of PLL;"

State in respect of each of Anthony Galley, Geoffrey Galley, Albert Morland, Ian Atkinson and Barrie Bevis:

18.a the "PLL Confidential Information" alleged to have been used by each of the above;

18.b the date or dates of such use;

18.c the manner in which such alleged information has been allegedly used."

The particulars given were as follows:

"18.a-c The Plaintiffs cannot give further particulars of matters within the knowledge of Anthony Galley, Geoffrey Galley, Albert Morland, Ian Atkinson and Barrie Bevis until after the provision of further and better discovery by the Defendants herein.

However, on the basis of the limited discovery already provided by the Defendants, the Plaintiffs aver that:-

(a) the correspondence between Geoffrey Galley and David Stern (understood to be a consultant at AVCL) demonstrates that AVCL intended to adopt, inter alia, the techniques and procedures used and developed at OSL for the manufacture of contact lenses. In particular, the Plaintiffs refer to Documents 316, 322 and 457 of the Defendants' List of Documents;

(b) the communications, order and invoices between AVCL and AB Precision (Poole) Ltd demonstrate that AVCL intended to establish a manufacturing capability identical to that of OSL. In particular, AVCL (through Geoffrey Galley) used, and disclosed to AB Precision (Poole) Limited, OSL confidential and proprietary information in order to commission the manufacture of machinery identical to that used and developed by OSL. The Plaintiffs refer to Documents 344, 346, 348, 349, 498, 499 and 504 of the Defendants' List of Documents;

(c) the machinery drawings referred to at paragraph (b) above were disclosed to and used by AB Precision (Poole) Ltd for the benefit of AVCL. In particular, the Plaintiffs refer to the following Drawings listed in the Defendants' Solicitors Schedule given pursuant to the terms of the undertaking of 14 July 1994:- 5, 7-8, 68-77, 79, 81, 83-90, 92-110, 113-118, 122-125, 127-141, 143-150, 152-156, 158-159, 162-172, 174-193, 195-198, 200-205, 209, 211-213, 245-249, 252-254, 262, 271-272, 319, 376-385, 387-397, 421-422, 425-427 and 429-430. All these drawings are marked with the received stamp of AB Precision (Poole) Ltd of "Work Order MD 3597";

(d) the notes of Gary Cheater, which identify the steel inserts manufactured by OSL and are proprietary and confidential to OSL, have been disclosed by AVCL in this action. The Plaintiffs refer to Documents 354 and 355 of the Defendants' List of Documents; and

(e) The Plaintiffs refer to Documents 519-522 of the Defendants' List of Documents. These letters written by Barrie Bevis on behalf of AVCL to RS Tooling, Perfect Bore Engineering, Enham Industries and AB Precision (Poole) Ltd on 15th July 1994 request the return of copies of machinery/engineering drawings. The Plaintiffs aver that these letters demonstrate the further unauthorised use and/or disclosure of OSL proprietary and confidential information."

It will be noticed that none of these particulars makes any specific allegation against Anthony Galley. Furthermore, although 182 documents were pleaded, it was not suggested on the pleading that he had anything directly to do with any of them. No further particulars were given. After the close of the evidence, the only specifics upon which the plaintiff relied were as follows:

"Anthony Galley was fully aware of, and was an integral part of the scheme to set up an AVCL plant using PLL confidential information (see the sections on breach of confidence and conspiracy). This included knowledge of the surreptitious use of PLL drawings by Geoffrey Galley to order equipment (Geoffrey Galley 208, 211: Q1/1/73-75) which as managing director of PLL he ought to have taken steps to stop; and Geoffrey Galley's establishment of premises for insert manufacture by GC (Geoffrey Galley 218: Q1/1/77). He provided research and development information to Geoffrey Galley for use at Aspect relating to [certain] extractables for wet processing (D21/409). In addition, although managing director of PLL he was personally involved in ordering equipment from the suppliers RS Tooling by reference to PLL drawings held by them (memo to Judith Carey dated 14 April 1994: D22/152) and the manuscript note on the AVCL purchase order at J2/478."

Although this refers back to the parts of the plaintiffs' skeleton argument relating to breach of confidence and conspiracy, those make no further specific allegations against Anthony Galley, save that he was fully aware of the decision to put an insurance policy in place for AVCL. The allegation of personal involvement relates to three matters only (i) confidential research data concerning certain extractables, (ii) the order from RS Tooling dated 14 April 1994 and (iii) the AVCL purchase order at J2/478.

The first of these, besides not being pleaded against Anthony Galley has already been dealt with. This was not confidential information and no other case in relation to this was put forward. Furthermore, as Mr. Mitchell pointed out, it was not put to Anthony Galley during cross-examination so the court has not had the benefit of his answer in relation to this. I should also add that, on the evidence, this item appears to me to be trivial. This assertion is not made out.

The second item consists of a facsimile transmission from Mr. Galley to a Judith Carey at AVCL. It says that tinting jigs should be ready in about 2 weeks and instructs her to fax confirmation of order to RS Tooling. The items of equipment involved consist of Dolly Carriers (£9.10 each), Weight and Mask Carriers (£17.75 each), Tinting Masks (£9.80 each), Lens Dollys (£5.08 each) and Small pupil masks (£11.54 each). Against each item there is a reference to a PLL drawing. This was put to Mr. Galley in cross-examination:

"Mr. Males. Would you turn to D22, page 152.

A. Yes.

Q. This is from you to Judith Carey. What is her position?

A. She is a customer services manager at Aspect.

Q. This is an instruction to fax a confirmation order to R.S. Tooling. Do you say that that was really for PLL?

A. This is absolutely nothing to do with the setting up of the manufacturing facility at Aspect. We have tried to make this point so many times. You deny any understanding of what these devices are. They do not even reside at Hamble. From 1990 to the present day they reside at Berkhamsted. They are nothing to do with the establishment of a manufacturing facility for Aspect.

Q. These are references to PLL drawings, are they not?

A. Yes."

There was no further cross-examination in relation to this. Mr. Galley's evidence that this had nothing to do with the setting up of the manufacturing facility at AVCL was not challenged. Furthermore, the triviality of the pieces of equipment covered by the order is suggested not only by their price but by the evidence of Mr. Kenney, one of the plaintiffs' witnesses^[108] and Mr. Fruth^[109]. This assertion is not made out.

The third item appears to be the AVCL purchase order to RS Tooling following from Mr. Galley's communication with Miss Carey referred to above. No separate point was raised on this and it was not put to any witness.

Even if these allegations had been properly pleaded and made out, I would have decided that they were so minor in nature that they did not give sufficient grounds to justify Mr. Galley's dismissal.

In the end, therefore, the case against Mr. Galley is that he knew what the others were doing and he should have stopped them. As I have already said, all the defendants thought that the pre-September, 1992 technology, such as it was, was theirs to use. There is some material which suggests that that was Mr. Fruth's and Mr. Lichtwardt's understanding originally also. At the time that Mr. Geoffrey Galley was making contingency plans for AVCL's own production facility, Mr. Anthony Galley was not aware that the plans being hatched were in breach of any rights of PLL. I have to decide whether, in all the circumstances, Mr. Anthony Galley's failure to stop what his father and AVCL were planning was sufficient to justify his dismissal from his position as managing director of PLL. With some hesitation, I have come to the conclusion that this was an omission on his part which did not justify his removal. Throughout Mr. Galley tried to serve PLL faithfully. His acquiescence in what AVCL was planning was not with a view to that company damaging PLL. On the contrary, he was throughout aware that a failure of PLL to live up to its delivery obligations under the PSA would expose it to serious legal consequences. If that course was forced on PLL by Mr. Fruth, the fact that AVCL would shortly be in position to supply itself clearly would limit the compensation which PLL would have to pay if litigation followed.
 


Section 11: Solicitation and Assistance

The statement of claim contains two interlinked allegations of unlawful solicitation of PLL's employees and unlawful assistance to AVCL. The pleadings relating to these issues are complicated but may be summarised as follows:

(1) Anthony Galley solicited PLL employees to terminate their employment with that company. This he did by visiting the homes of various senior employees of the company in the company of his father and Mr. Bevis and inviting them to the Solent Hotel meeting. Also it is said that he impliedly endorsed and adopted the solicitation of key employees made by his father in the course of that meeting.^[110] This was said to be in breach of the provisions of Clauses 5, 9(a) and 7 of his employment agreement.

(2) Geoffrey Galley induced that solicitation by his son^[111].

(3) Geoffrey Galley also breached his consultancy agreement by:

(i) assisting AVCL in the area of contact lens research, development or manufacturing^[112] and

(ii) soliciting employees to leave PLL by accompanying his son on the latter's visits to senior employees^[113].

(4) Mr. Brooker induced or procured Anthony Galley to solicit^[114].

(5) Mr. Morland breached his consultancy agreement by assisting AVCL in the area of contact lens research, development or manufacturing ^[115].

(6) Mr. Bevis has breached his 'directors agreement' by assisting AVCL in the area of contact lens research, development or manufacturing^[116].

Three matters can be disposed of immediately. In their closing submissions, the plaintiffs raised for the first time an allegation of soliciting against Mr. Morland. It had not previously been pleaded. He neither visited the PLL employees with the Galleys nor said anything at the Solent Hotel meeting. It was not open to the plaintiffs to make this assertion against him and, in any event, it was without foundation. Secondly, I did not understand the assertion of procurement against Mr. Brooker to be pursued. Thirdly Mr. Bevis never had a formal director's agreement. The claims against him in relation to this issue do not appear to have been pursued in the plaintiffs' closing submissions and, in any event, were not made out.

The argument against Mr. Geoffrey Galley (except in respect of procuring his son to solicit) and Mr. Morland was that each of them were signatories to consultancy agreements which included the following provision:

"Consultant agrees that Consultant will not work for or assist any other person or entity in the area of contact lens research, development or manufacturing during the term of this Agreement."

The plaintiffs said that any assistance given by these defendants in any way to anyone in the field of contact lens research, development or manufacturing breached these agreements. In particular they were not allowed to give any assistance whatsoever to AVCL^[117]. Therefore any assistance, whether by way of technical input or finding employees for AVCL was a breach. This is how the direct case of soliciting was put against Mr. Geoffrey Galley. The plaintiffs accepted that this meant that even if AVCL was entitled to a licence or even a royalty free sublicence under the PLA, Geoffrey Galley and Mr. Morland could not help to implement it. Furthermore they said that this was so, even though it was accepted that the Patent Owners, including Geoffrey Galley and Mr. Morland, owned the contact lens technology "to the extent covered" by the Galley Patent by virtue of clause 5 of the PLA and were expressly allowed to assist licensees under that patent by virtue of Clause 11.2 of the latter agreement.

During the trial, I expressed concern at the width of the construction put on these consultancy agreements by the plaintiffs. Thereupon the defendants applied for and were granted leave to amend the defence to plead that, so construed, the agreements were in unreasonable restraint of trade. However the defendants' primary argument was that the plaintiffs' construction of these agreements was wrong. The defendants said that clause 1 of the consultancy agreements must be read together with clause 11.2 of the PLA, so that Geoffrey Galley and Mr. Morland were not entitled to assist any person other than PLL in the above field except for those duly licensed under the patents.

I have no doubt that, if the construction put upon the consultancy agreements was as urged by the plaintiffs, they would be in unreasonable restraint of trade. The restrictions on their face are in restraint of trade. The onus of proof would therefore be on the plaintiffs to establish that they are reasonable from the point of view of the parties and of the public, see: Nordenfeldt v Maxim Nordenfeldt & Co. [1894] AC 535. In view of the fact that the parties had agreed that the Patent Owners owned the technology relating to the most important part of the process, the liquid edge design, and that it was proper that AVCL should be entitled to a licence from the Patent Owners and to assistance from them, I cannot see how it could have been in PLL's reasonable interests to prevent some of those Patent Owners, including Mr. Geoffrey Galley, from giving the assistance which the parties had agreed it was proper and reasonable to give.

In the event, I do not accept the plaintiffs' construction. They agreed that the bundle of 1992 contracts should be read together. The construction advanced by the defendants is the correct one. It allows the consultancy agreements to be consistent with the other agreements. It follows that any assistance given by Mr. Geoffrey Galley or Mr. Morland to AVCL under the cover of the patent licence did not breach their consultancy agreements. This, of course, has no impact upon whether they acted wrongfully by breaching obligations of confidence. But those obligations are not tied to the provisions of clause 1 of the consultancy agreements.

I can therefore turn to the issue of solicitation. The non-solicitation provision of Anthony Galley's employment contract is in Clause 7 and is in the following terms:

"[Mr. Galley] agrees during the term of this Employment Agreement and for a period of 1 year after expiration or termination of this Agreement that he shall not solicit, encourage, or take any other action which is intended to induce any other employee of PLL to terminate his employment with [PLL]."

The plaintiffs pointed to the provisions of Clause 9(c) of Mr. Galley's employment contract which stipulates that if he is sacked by PLL without cause, as I have held happened, then, inter alia, he is no longer bound by the non-compete provisions of Clause 5 of that agreement. They say that no similar provision relates to Clause 7 with the result that, even if Mr. Galley's employment is terminated improperly, the non-solicitation provisions of Clause 7 continue to run. I do not agree. If PLL repudiates the contract of employment, as it has, and if the employee accepts that repudiation, as he did, I can not see how the non-solicitation obligation can continue. In the event that I am wrong in relation to this, I will consider whether there was solicitation.

Before considering the facts, it is convenient to determine what is meant by "solicit". Mr. Males said that the intention of Mr. Geoffrey Galley, and indirectly of Mr. Anthony Galley, was to solicit PLL employees to join AVCL but that it was not necessary to prove any such intention. He said that if words or acts had the effect of making employees leave PLL to join AVCL, then it did not matter whether or not they were spoken or done with that intention. On the other hand Mr. Pumfrey said that intention was a necessary ingredient.

Solicitation is not a tort. What is prohibited is determined by the terms of the contract. The restraint on Anthony Galley was not to "solicit ... or take any other action which is intended to induce any other employee of the Company to terminate his employment ..." (my emphasis). In my view it is apparent that, under this contract, what counts is the intention of Anthony Galley. In this case, because most of the words or acts complained of were spoken or done by Geoffrey Galley, it is the intention of both Galleys which counts. If an employee enters into a covenant not to solicit and then does things which any right-minded man would think was intended to induce other employees to leave their employer, the court will start by assuming that the covenantor intended what was the natural consequence of his acts and words. It is likely to be deeply sceptical of any assertions that he did not intend what any reasonable man would see as the foreseeable consequences of what he has done. But in the end the court has to come to a conclusion as to what the covenantor intended. If the covenantor intends to divert staff and makes a play for them, he has solicited. Even if the attempt fails, the terms of the contract have been breached. Failure will limit the scope for damages but not liability.

The plaintiffs have relied on four matters in support of this part of their case. First they rely on what was said by Mr. Geoffrey Galley in the presence of Anthony Galley when they visited the houses of senior PLL employees on the weekend of 23 and 24 April, 1994. Secondly they rely on what was said at the Solent Hotel at the meeting addressed by Geoffrey Galley. Thirdly, they say that Geoffrey Galley's intention can be discerned from the letter which he subsequently wrote and was sent to Mr. Fruth with a videotape of the meeting. Fourthly they pleaded that the solicitation was successful in that certain employees left PLL and joined AVCL.

The first two of these go together. It is not suggested that anything said during the visit to senior employees of PLL during the weekend was, of itself, a solicitation. However the visit, taken together with what happened at the hotel shows that Geoffrey Galley intended to induce employees to leave PLL. This is an unusual case in that there exists a perfect record of what was said at the meeting, namely the videotape of it. Two transcripts of what was said were also included in the court bundles. One of these was produced by the plaintiffs, the other by the defendants.

Nearly all the senior employees of PLL, including Mr. Maher, were invited to attend the Solent Hotel meeting. 19 did so. They represented the cream of the technical and financial arms of PLL's business. Also present were AVCL's solicitor and accountant. Those attending had received a standard form letter in the following terms:

"Dear ...

I would like to invite you to a meeting to be held at The Solent Hotel, Whiteley at 5 pm on Monday April 25th.

The purpose of this meeting is to deal with certain serious allegations which have been made by the Board of Directors of PLL against former Directors and employees. All of the original Board will be present at the meeting.

Attached is a list of the other individuals who have been invited to attend.

Two lawyers will be present to confirm certain items of information presented.

I do hope you will be present as I believe that the matters discussed will have an important bearing on your future employment."

The plaintiffs relied particularly on the last sentence.

At the meeting Geoffrey Galley spoke for over an hour. Towards the end, he said:

"My advice to you, ladies and gentlemen, is to go back to your work and do the best you can. You've got a big stake in Ocular Sciences and if you do a good job and Ocular Sciences succeeds, we're going to make a lot of money. So I hope you don't mind if I appeal in my own selfish interest to you to go back and work for this company, and do the best you can. ... I ask you if there is any discussion, if you're allowed any discussion with your directors, try and persuade them to follow the sensible compromise course we are offering."

However, in my view it was not enough to look only at those words and defendants' assertion that Geoffrey Galley's intention was not to solicit. It is necessary to have regard to the totality of what happened at the meeting and the circumstances in which it was held. It was agreed that I could only really get a proper understanding and feel for what was said and how it was likely to impact on the audience by watching the video myself. This I did.

Mr. Geoffrey Galley's explanation for calling the meeting was as follows. He believe that the way in which Mr. Fruth had treated his son was shameful and dishonest. He was very angry. He believed that Mr. Fruth and Mr. Lichtwardt had conspired together to bring PLL completely under their control and, at the same time, to destroy AVCL. To his end they had fabricated a list of criticisms, including allegations of gross dishonesty, against Anthony Galley. Geoffrey Galley was determined that the senior employees of PLL, most of whom he had known for a long time and all of whom had worked for a long time harmoniously under Anthony Galley's tutelage, should be told the truth. He also said that his intention was to encourage the existing staff to stay on and to try to persuade Mr. Fruth that the course he was embarking on was foolish and would harm not only AVCL but also OSI and PLL. During the course of his address he pointed out that he and his son continued to have a substantial shareholding in OSI.

Mr. Geoffrey Galley's anger is clear to discern throughout the videotape. I have no doubt that his criticisms of Mr. Fruth and Mr. Licthwardt were, in substance, accurate. Those criticisms were expressed in strong language. I am not surprised that they were. However it is apparent that the speech was planned in advance. It was possible that Mr. Galley's final words to the meeting, quoted above, were intended not so much to persuade PLL employees to stay with their current employee but as a mere token to pay lip service to the non-solicitation provisions in his son's contract of employment and to keep AVCL's solicitor happy.

I have considered carefully not only the videotape and all of Mr. Galley's evidence on this topic but also the commercial realities. Mr. Galley is clearly a passionate man. He would make, no doubt, a formidable and unforgiving enemy. Be he also struck me as very practical and calculating. He paid particular regard to his long term commercial interests. Although no doubt the Solent Hotel meeting was primarily motivated by anger at Mr. Fruth and Mr. Licthwardt, Mr. Galley was also looking to the future. At the time of the meeting AVCL was not in a position to go into production. It did not have all the necessary equipment in place to do so. If it was to survive it needed a continued source of supply of lenses. In the short term the only realistic source was PLL. It was in AVCL's and the Galley's interest that PLL should not carry out its threat to increase prices and restrict or even cut off supplies. Furthermore, I have no doubt that Geoffrey Galley believe that it was in PLL's and OSI's interest to restore the former PLL/AVCL supply relationship. What was not in AVCL's interests was to harm PLL's ability, or increase its unwillingness, to supply. The best outcome from Mr. Galley's point of view was for all three companies to thrive. To entice most or many of the most important employees of PLL to leave their employment would have harmed PLL and made a final rupture in the relationship between PLL and AVCL a certainty. That would have harmed all three companies. Mr. Galley may be an emotional man with strongly held views but he is no Samson. I do not believe that he ever intended to do something which would pull down all three companies. This view is consistent with the letter which he sent to Mr. Fruth with a copy of the videotape. That letter makes it clear that what Mr. Galley still wanted was a normal working relationship between the companies. Removing the senior personnel from PLL would sabotage that objective.

I should not leave the issue of intention, without making reference to Anthony Galley. As I have already said, he made a very short speech after his father. That he was shocked and distressed at his forced departure from PLL and the manner in which it was done is clear. If anyone might have been expected to try to harm PLL out of revenge, it was him. However that was not his attitude. He ended his statement as follows:

"I'm very proud of PLL and its management and all its employees and everything we've achieved over the last six years. I've always tried to do my job as well as I can and I hope I've been able to help you do yours. I'm not used to this political rubbish and as far as I'm concerned, the sooner it's over the better. I'm unlikely to work at PLL again, but I promise you I'll do everything I can to help this company survive and be successful in the future. I haven't worked as hard as I have over the last ten years to see it destroyed in this manner."

That that was his real feeling was not seriously challenged. Anthony Galley also never intended to divert any employees from PLL.

Finally, I should deal with one other issue, in case this matter goes further. Although Mr. Fruth referred in his evidence to various PLL personnel who left to join AVCL, the overwhelming majority of them only left after Sir Peter Pain's judgment on the interlocutory application. Their motive for doing so was not investigated. The only employees who were pleaded as having succumbed to the alleged solicitation were Mr Gary Cheater, a tool maker and manager of the insert department of PLL, Mr Ford, the Insert Validation Manager, Mr Edwards the Production Manager, and Mr Hilliard another Production Manager. All of these were duly produced by the defendants for cross-examination. All gave perfectly sound commercial reasons why they decided to go to AVCL. Only one, Mr. Edwards, gave evidence on which the plaintiffs sought to rely. It was as follows:

"Q. That meeting would have had a significant impact on your determination whether to stay at PLL or leave at a future stage, would it not?

A. It had an impact. I did not make up my mind at that time but obviously arguments came up. Thoughts came up in my mind that did start me thinking, yes."^[118]

That evidence is a long way from establishing that Mr. Edwards was persuaded by what Mr. Galley said into leaving PLL. If he came to the conclusion that Mr. Fruth and his appointees were not the sort of people he wanted to have control of his future employment prospects, that is not solicitation. In any event, it does not go to the issue of the Galleys' intentions.

The plaintiffs fail on this claim as well.


 


Section 12: The Counterclaim

The above sections of this judgment deal with all the claims by the plaintiffs in the breach of confidence action which were extant by the stage of their closing submissions. It is not in dispute that the defendants are obliged to pay the plaintiffs for stock supplied to AVCL, or taken by AVCL from the stocks retained by them at the time of the breakdown of relations in April 1994, and any sums due from them under these heads will need to be added to the financial recovery, if any, which the plaintiffs make in relation to breach of confidence. However, the defendants have raised certain counterclaims in this action and it is to those that I now turn.

(1) Unpaid royalties due under the PLA

The plaintiffs do not dispute that they owe the Patent Owners royalties due under the PLA. The July 1994 instalment was $850,000. The reason that that sum, and a subsequent instalment, were not paid was because the plaintiffs had not been paid for stocks of lenses delivered to or made use of by AVCL.

(2) Breach of the PSA

In view of the findings I have made above in relation to the history of the relationship between the parties and, in particular, the question of whether the definition of covered products in the PSA had been legitimately extended to cover the 38% and 55% disposables, it is clear that the plaintiffs were in breach of their contractual obligations by declining to continue to supply those lenses to AVCL. They were also in breach by allowing others to sell covered products in the United Kingdom. AVCL is entitled to compensation for the losses thereby caused.

At one point there was an issue between the parties as to whether or not PLL had repudiated the PSA and whether that repudiation had been accepted by AVCL. In a letter from the defendants' solicitors of 17 May, 1994 complaint was made that PLL's notification of a price of £1.20 per lens for the second quarter of 1994 and its refusal to commit itself to comply with the supply requirements under the PSA, particularly in relation to disposables, amounted to repudiation. They demanded not only that an outstanding delivery be made but that PLL must confirm by 20 May that it would continue to make deliveries of stock thereafter. They said that if the required delivery and confirmation of continued supply was not furnished by that date, AVCL would treat the agreement as brought to an end.

In response the plaintiffs said that, although an act of acceptance of a repudiation requires no particular form, it must nevertheless clearly and unequivocally convey to the repudiating party that that aggrieved party is treating the contract as at an end: Vitol S.A. v Norelf Ltd [1996] C.L.C. 1159. On the other hand, they urged that a notification that the aggrieved party would treat the agreeement as at an end unless some act was performed with in a specified time limit, lacks the clarity and absence of equivocation which is required. It looks forward to a further step actually to terminate the contract which the aggrieved party states that it is minded to take, but it cannot commit the aggrieved party to take that further step. The absence of a further notification, after expiry of the deadline, that the aggrieved party is now treating the contract as at an end, as required, is consistent with a decision to keep the contract alive for the time being after all.

In my view the plaintiffs are wrong on this issue. The acceptance of PLL's repudiation by AVCL was subject to a four day period of grace. The 17 May letter made it clear that if, within that period, PLL failed to confirm that it intended to comply with its contractual obligations under the PSA, AVCL intended to treat the agreeement at an end. There was nothing ambiguous about that. The deadline passed and the contract came to an end. The fact that subsequently AVCL expressed a desire, if a workable relationship between it and PLL could be reestablished, to continue to operate in accordance with the PSA, does not alter the position.

(3) Claims by Anthony Galley arising out of his contract of employment

Since I have held that Anthony Galley was sacked without cause, Clause 9(c) of his employment agreement comes into operation. This entitles him to severance payment equal to two years annual salary. The sum involved is $220,000. That money is due to Mr. Galley. In addition to this Clause 2 of his employment agreement provides:

"At the discretion of the Board of Directors of the Company, Employee may be paid an annual bonus. The amount of the bonus, if any, shall be determined by the Board of Directors in its discretion, but in no event shall exceed an amount equal to 33% of Employee's annual salary."

It was said that Mr. Galley was entitled to a bonus of $36,300 pursuant to this provision. The manner in which his entitlement arose was the subject of unchallenged evidence given by Mr. Galley in his witness statement. It amounted to this, that Mr. Fruth agreed orally to the payment of the bonus although he failed to respond to a number of written requests by Anthony Galley for written confirmationt that the bonus would be paid. In the absence of cross-examination on this issue, I accept that there was an oral agreement as alleged. However that does not entitle Mr. Galley to the bonus. The bonus was only payable if the board of directors of PLL agreed it. It is not alleged that the board of directors did so agree. At the time of the agreement with Mr. Fruth, he was not a director of PLL and it is not suggested that he had authority to speak on the board's behalf so as to bind PLL.

This counterclaim fails.


 


Section 13: Repudiation of the patent licence by plaintiffs

(1) Repudiation of the PLA and infringement.

This leaves only the patent issues to be determined. They were brought into play belatedly by the defendants who were listed as owners of the liquid edge patent (i.e. the Galleys, Mr. Morland, Mr. Bevis and Mr. Atkinson), presumably to bring home to the plaintiffs that they had something to lose by continuing with the litigation. The defendant to the action is PLL. Although the PLA gave PLL a perpetual and irrevocable licence under the liquid edge patent, the patent owners said that this had been terminated by repudiatory breach. Once again, so that the terminology in this part of the judgment is consistent with that used in earlier sections, PLL will be referred to as the plaintiff and the patent owners will be referred to as the defendants even though, in this action, it is the reverse of their status.

Two grounds are advanced upon which termination is said to be justified. The first arises out of alleged breach of an implied term of the PLA that OSI would not commit any act which interfered with the defendants' right to grant licences to others and, in particular, to grant a licence to AVCL provided that such licence was at fair market value^[119]. The second arises out of a failure by PLL to pay royalties due under the PLA. They were paid instead, on the plaintiffs' lawyers' advice, into an escrow account. Both of these breaches were said to amount to repudiations of the PLA by PLL. The repudiations were accepted by means of a letter from the defendants' solicitors dated 10 February, 1995. If that is a correct analysis of what has happened, since February 1995, PLL has been manufacturing contact lenses without the benefit of a licence. The defendants therefore have sued for infringement.

I can deal briefly with the first of these. The implied term is as referred to above. The breach of it consists of the commencement of the breach of confidence action on 19 May 1994. It is said that at that time the plaintiffs did not know that a licence had been granted to AVCL and therefore had no grounds for thinking that it had been granted on terms which were other than at a fair market value. Furthermore, once they had seen the licence granted to AVCL, the plaintiffs maintained that it was not at a fair market value. This was said to have been an unfounded assertion. Making it and pursuing it was without cause. It is therefore said that the relevant pleadings and claims in the breach of confidence action are made in bad faith. The defendants say:

"... in the premises the purpose of making such a claim was and is to be able to assert that AVCL was not properly licensed by the [defendants] under the Patent and thereby to interfere with the grant and operation of the AVCL Licence. Such claim was and is accordingly a breach of the implied term ..."^[120]

There is nothing in this part of the defendants' case. A term will only be implied into a contract if it is necessary for the contract to work see The Moorcock (1889) 14 PD 64 and Liverpool City Council v. Irwin [1977] AC 239. The defendants do not get near to establishing any such necessity here. On the contrary, as Mr. Waugh pointed out, although the Patent Owners may grant other licenses and, in particular, may grant a licence to AVCL, provided it is at a fair market value, this places no obligation on PLL. It simply means that their licence is not exclusive. PLL is under no obligation to assist granting licences to third parties. To the contrary, PLL could, if it so chose, have lobbied hard to prevent any such licences being granted.

Secondly the pleaded implied term could not have been breached. The term argued for is that PLL will not interfere with the defendants' right "to grant licences to others and, in particular, to ... AVCL". AVCL was licensed under the patent in December, 1994. It was not explained how the commencement of the breach of confidence proceedings, even assuming that they were without foundation, some 5 months later could have interfered with the defendants' right to grant it.

The second argument appears, superficially, to have more substance. Royalties were due on 15 January, 1995. On 10 January, the plaintiffs' solicitors wrote to the defendants' solicitors explaining that in the light of the ongoing litigation and, in particular, the claims made against the patent holders, the plaintiffs were not disposed to make a royalty payment which might prove to be irrecoverable after the litigation. They suggested that the royalties be paid into an escrow account. In reply, on 12 January the defendants' solicitors stated that their clients were not prepared to accept any withholding of payment and that any attempt to do so would be a breach of contract. The letter went on:

"However, we accept that time is not expressly made of the essence of the obligation to pay under the Patent Licence Agreement. Our clients therefore make time of the essence by this letter."

The plaintiffs were then given 14 days from 15 January to pay the royalties in full and the defendants intimated that failure to do so would be treated as a repudiation which the defendants would accept. Notwithstanding this threat, the plaintiffs paid the royalties into an escrow account. Mr. Pumfrey put it pithily when he said that time was made of the essence; the plaintiffs did not pay and therefore they must bear the consequences. It is as simple as that. Here there is no question of an equitable set off and misapprehension as to the impact of the terms of the contract does not help the plaintiffs avoid the consequences of their repudiation.

This whole argument proceeds on a false assumption. Mr. Pumfrey suggests that because his solicitors said "time is of the essence" then time does in fact become of the essence and failure to keep to the specified time limit is a repudiation of the contract. But as Chitty (27th Edn.) points out at paragraph 21-014, in determining the consequences of a stipulation that time is to be of the essence of an obligation, it is vital to distinguish between the case where both parties agree that time is to be of the essence and the case where, following a breach of a non-essential term of the contract, the innocent party serves a notice on the other stating that time is to be of the essence. In the latter case, such a notice does not serve to make time of the essence as far as the obligations in the original contract are concerned, because one party cannot unilaterally vary the terms of a contract by turning what was previously a non-essential term of the contract into an essential term. The party giving the notice can only terminate where the failure of the other party to comply with the terms of the notice goes to the root of the contract so as to deprive that party of a substantial part of the benefit to which he was entitled under the terms of the contract. Failure to comply with the terms of the notice can therefore only be used as evidence of a repudiatory breach; it is not a repudiatory breach per se.

It seems to me that whatever may be the effect of a party unilaterally declaring time to be of the essence, it cannot be to give that party a right to terminate the agreement when the parties have made it clear that it should not be terminable. There is no doubt that the parties to the PLA intended the licence to be granted under it to be irrevocable. Not only does the agreement say so in terms and use the expression "perpetual" but there are no provisions relating to termination at all. Once again it should be borne in mind that the PLA was brought into existence at the same time as all the other September, 1992 agreements and the parties agreed that they should be read together. It is noticeable that the other agreements have termination provisions. This does not. In my view it is not open to the defendants unilaterally to make time of the essence so as to give rise to a right to terminate. Mr. Waugh was right to draw the parallel between the facts of this case and Guyot -v- Thomson (1894) 11 RPC 541 in which a licensee under a patent licence withheld royalties as a result of a dispute between himself and the patentee. The patentee purported to treat the licence as at an end. Both the High Court and the Court of Appeal approached the issue as one of determining the true construction of the licence. Romer J. held:

"...on the true construction of the licence, the Defendant had no power to revoke it by reason of any breach of any of the Plaintiffs' covenants - certainly not a breach by reason of non payment of the royalty on the precise date fixed by the licence... If there had been any breach of this covenant by the Plaintiffs, the Defendant would have had the usual remedy against the Plaintiffs for damages."

The Court of Appeal upheld his judgment:

"... looking at the document and considering it as best I can, I come to the conclusion that it was obviously the intention of the parties that it should not be revocable, but that there is an implied covenant that it should not be revocable and that there is to be an implied covenant that the licence is to continue for the residue of the term of the patent." per Lopes LJ and

"I find running through this document an assumption, upon which the provisions of it are framed, that the licence will subsist during the term for which it purports to be granted." per Davey LJ.

Here there is no need to draw any inferences. The parties expressly agreed that the licence was to be irrevocable. The same conclusion can be arrived at in a different way. Whether a failure by a party to a contract to honour one or more of its terms amounts to repudiation is a question of fact. The court must make up its mind whether the party's intention was to abandon the contract. See Woodar Investment Development Ltd v. Wimpy Construction Ltd [1980] 1 WLR 277 HL. The payment of the royalties into an escrow account did not amount to an intimation on the part of the plaintiffs that they intended to abandon the PLA. Therefore it did not amount to repudiation. The plaintiffs' licence to operate under the liquid edge patent continues. In these circumstances the issue of patent infringement does not arise for consideration. Similarly the interesting point under section 64 of the Patents Act, 1977 does not need to be considered.


 


Section 14: Patent validity

The issue of infringement having been raised, the plaintiffs challenged the validity of the liquid edge patent (the Galley patent). Although nothing now to turns on this as between the parties, since the plaintiffs have a perpetual licence, the validity of the Galley patent affects third parties and once the matter has been raised and evidence put before it the court should deal with the issue even if the parties have no interest in pursuing it themselves (c.f. Gramophone Co. v. Magazine Holder Co. (1911) 28 RPC 221 (HL), the judgment of Baggallay LJ in Le May v. Welch (1884) 28 Ch D 24 at page 31, and Geodesic Construction Pty Ltd. v. Gaston (1976) 16 SASR 453 - all registered design cases).

The Galley patent, European Patent (UK) No. 0,383,425, has a priority date of 12 January, 1989. The plaintiffs pleaded invalidity on the ground of lack of novelty, obviousness and insufficiency. In his speech after the close of the evidence, Mr. Waugh said that the plaintiffs no longer pursued the allegation of lack of novelty but they did maintain the other two attacks. The more formidable of these is obviousness.

Nature of the invention

The patent is concerned with moulds and a process for making cast moulded contact lenses. A particular problem with cast moulding is that the polymer of which the lens is to be made will contract during curing. To ensure that the lens is produced with the accurate shape necessary in the finished product, this shrinkage has to be accommodated in some way. In the patented process and apparatus this is achieved by the use of a 'piston' arrangement in which one part of the mould (the male part) is allowed to slide inside the other part (the female part) while the two parts fit snugly together. This is illustrated in the following drawings which are reproduced from the patent.

Figure 9. Galley patent.



The contact lens is to be cast in the space (24) between the male part (20) and the female part (22). As the lens polymer cures and shrinks, it tends to create a vacuum inside the space (24). The result is that atmospheric pressure tends to push the male part further into the female part. As this happens, the vertical outer face (28) of the male part rides up on the inner face of the female part. A tight fit is achieved at the point (26, 27) at which these two faces touch so that the polymer within the mould (i.e. within the space 24) is isolated and separated from any excess polymer which has been squeezed out of it. The result is that the mould both accommodates shrinkage of the polymer and produces an edge to the finished lens which is near perfect. In particular, it will not have 'flash' - the thin and irregular skirt of polymer which is created by the excess polymer lying outside the mould. There was no dispute between the parties that it was this piston-like action which is the most important feature of the alleged invention. This is reflected in claim 1 of the patent which is in the following terms:

(A) A plastics material mould for casting a contact lens from curable material which shrinks during curing, said mould comprising:-

(B) male and female mould members (20,22) adapted to fit together to define a mould cavity; and

(C) said male and female mould members each present a curved surface (21,23) for moulding a respective desired optical surface of a contact lens;

(D) said male and female mould members being adapted to permit the mould members to move towards one another during curing of said curable materials introduced into the mould cavity to cast lens;

characterised in that:-

(E) said male mould member (20) has a shoulder (26) adjacent and circumferentially surrounding its optical curved surface;

(F) said female mould member (22) presents a generally cylindrical surface (25) adjacent and circumferentially surrounding its optical curved surface; and

(G) said shoulder (26) is a circumferentially continuous slideable fit with said generally cylindrical surface (25) when the mould members are assembled to permit the mould members to move slideably towards one another during curing of said curable material introduced into the mould cavity to cast a lens.

For the purpose of this judgment, the claim has been split into features (A) - (G). The piston like effect is achieved by features (E) to (G).

By the time of the closing submissions, the attack of obviousness was based on two pieces of prior art.; (i) US patent No. 4,208,364 ("Shepherd") and (ii) European Patent (UK) No. 0,255,535 (CooperVision) and common general knowledge. In fact the content of both of these patents was said to be common general knowledge. The defendants accepted that the teaching in Shepherd was, but denied this in relation to the CooperVision patent. There was no evidence to support the assertion that the CooperVision patent was common general knowledge at the priority date.

The mould arrangement described and patented by Shepherd was as illustrated below:

Figure 10: Shepherd.



In this arrangement, the male mould part (1) slides inside the female mould part (2) although they are not in sliding engagement with each other. The bottom of the male mould part has a depending ring (5) which, at least at its lower extremity, is quite flexible. When the mould is assembled, any shrinkage of the polymer in the mould results in the male mould moving further down into the female mould, the seal between the two being effected by the compression of the ring which is forced inwards as shown on Fig. 10(2). In fact the ring can be located either on the bottom of the male mould part or on the upper surface of the female mould part. The modus operandi is the same in both. The patent describes how the apex of the ring must be kept as thin as possible to minimize the irregularity of the contact line between the two parts of the mould. It says that the ring is very delicate and the male mould member must be handled with care to avoid damage. This patent was published in mid-1980.

The CooperVision mould design has some superficial similarities. It is illustrated in Figure 11 below:

Figure 11: CooperVision.



Once again, a male mould part (12) fits inside a female mould part (11). In this case the point of abutment (15) is arranged in such a way that no appreciable further inward movement of the male part with regard to the female part is possible. The patent teaches that in this design, the shrinkage of the polymer in the mould is catered for by the flexibility of the central area of the male mould part (19). This can flex in an inward direction like a diaphragm. The inventor points out that, unlike the arrangement arrived at by Shepherd, a solid shoulder (15) replaces the flexible ring.

Obviousness

The plaintiffs say that the employment of the piston feature in the Galley patent is obvious. They rely for this on two pieces of evidence in particular. The first consists of a passage in the cross-examination of Mr. Cracknell, the defendants' expert.

"Q. Can I approach this. Let us assume, in the particular case of contact lens manufacture, that there is understood to be an element of shrinkage of the monomer mixture when it sets or cures within the disposable mould. Would you assume that for a minute.

A. During the process of polymerization?

Q. Yes. And a means is felt to be required for accommodating the shrinkage of the polymer.

A. Yes.

Q. You saw the Shepherd patent.

A. Yes.

Q. You are familiar with Shepherd's circumferential lip.

A. Yes.

Q. Which would be weighted down and then the material could accommodate shrinkage by the flexing of the flexible rim; correct? You recollect that.... let us assume that the Shepherd patent proceeds on the assumption that that shrinkage is to be accommodated in that way; yes? Can we proceed on that assumption?

A. Yes.

Q. Let us assume that it is believed that it is not doing it adequately because it is difficult to mould the rim and it may not be supporting the edge properly. Can you accept that assumption?

A. Yes.

Q. Other devices or means of taking into account potential shrinkage is, for example, in the CooperVision line which we will look at in a minute, whereby there is some deformation of the optical surface. You are familiar with that concept.

A. Yes.

Q. Let us assume -- and would you accept this assumption -- that it is assumed that that again has problems associated with it.

A. Yes.

Q. You say in your report that the piston concept is simple in concept. I think that is why you say that such simplicity often results in claims of obviousness being made but what is it that would prevent a skilled mould-maker who is familiar with compensation by support within a mould from contemplating adopting that solution in the context of a flexible contact lens within a disposable mould?

A. Logically, if you recognised all the potential there it could be used, yes.

Q. And, indeed, it would certainly be worth trying because if it gave you an acceptable surface or acceptable rim then all well and good. If it did not you could go on and have a secondary polishing operation. So it would be worth trying in that respect, would it not?

A. Yes.

Q. Would you accept this? If it were likely to give some sort of useful result then you are no worse off with the product that you have because you can then go ahead and polish the edge.

A. I cannot see the logic of your question.

Q. If you accept that it is well worth trying -----

A. Yes.

Q. -- on the basis that it may give you a reasonable result. I think you would go with me that far.

A. If it gave you a reasonable result, why polish the edge?

Q. But would you accept that it would be worth trying to give you the prospect of some useful product?

A. Yes."^[121]

As skilful as this cross-examination was, I am not persuaded that it pushes me in the direction of a finding of obviousness. The fact that there is nothing which would "prevent a skilled mould-maker ... from contemplating adopting [the Galley] solution" does not make that solution obvious. In many cases where an inventor has made a significant but small contribution to the art it may be possible to say, with hindsight, that there was nothing to prevent him going in that direction. But the question frequently is not whether there was an obstacle in his way but rather whether he realised that there was a way here at all. For what it is worth Mr. Cracknell never said that he would have thought of adopting the Galley route, but the fact that he would not have thought of it also does not mean that it is inventive.

The second piece of evidence relied on is the following passage in the report of the plaintiffs' expert, Dr. Sammons, which was not the subject of cross-examination:

"... I have been asked to consider whether it would have been obvious to me immediately before the priority date of the Galley patent to have gone from the Coopervision patent to the Galley patent, taking into account the common general knowledge which a man of ordinary skill in the art would have had at that date.

My short answer is that it would indeed have been obvious. Looking at the idea of the Coopervision patent, it is directed at the accommodation of shrinkage of the polymeric material. It explicitly states that it does so by permitting movement of the diaphragm. As I state above in my comments on novelty, I consider that by virtue of the arrangement of the shoulders and surfaces shown in the figures to the Coopervision patent, it would be an inevitable result that there would be some slideable movement of the male towards the female on curing. However, if I am considered to be wrong on that, it must be obvious that one could make a small adjustment of the design to permit such slideable movement to occur. This could be done by reducing the angle of the female mould at its intersection with the male mould so that, to the extent that the female mould described by the Coopervision patent effectively presents an abutment to prevent relative slideable movement, any such abutment was removed. The concept of permitting or increasing the slideable movement would be obvious in light of:-

(a) the explicit references in Coopervision to the Shepherd patent, which itself refers to slideable movement to counteract the shrinkage effect; and

(b) the figures set out in Coopervision, particularly figures 7c-e."

Dr. Sammons has read the patent in suit and the pleaded prior art for the purpose of these proceedings. I have no doubt that it is his view, sincerely held, that the Galley patent is obvious over the disclosure in CooperVision. The concept used by Galley is so very simple that it's application to this type of mould is easy to understand. With the benefit of hindsight it is also very easy to conclude that this design would or should have occurred to those in the art. However, although the court must pay particular attention to the views of the parties' experts, in the end the decision on whether a development is obvious is a decision for it alone. In deciding that, it is frequently helpful to see what happened in fact in the real world.

This is an industry in which there have been a number of significant developments over a comparatively short period. Dr. Sammons explained that in the early 1970's, the use of glass moulds between which contact lenses could be moulded formed the basis of some small scale developments. He said that it is generally considered in the industry that the first real steps towards commercialising contact lenses manufacture using a moulding process came from Dr. Thomas Shepherd. His early patents referred to methods of moulding contact lenses using both the glass moulds and the concept of using an intermediate disposable plastic mould which is used once and then discarded. He said that during the 1980's an increasing driving force towards the realisation of a cast moulded process came with the growing trend towards the use of disposable or daily wear contact lenses. During the 1980's, manufacturers were clearly concerned that the lenses they manufactured would give the desired optical qualities together with good edges so that the lenses did not require finishing. Again, this was as a result of the increase in demand for the new wearing regime. The Shepherd method of producing cast lenses was technically advanced. According to Dr. Sammons, a commonly encountered problem in using cast moulding techniques for producing soft contact lenses was the shrinkage of the polymer in the mould. This was blamed for producing contact lenses of uncertain centre thickness, varying edge profiles and defective quality. Dr. Shepherd's cast moulding technique was, apparently, an attempt to reduce some of these problems. Mr. Galley said, and it was not disputed, that until the advent of the Galley patent, it was the most successful cast moulding technique used in the contact lens industry. However it still produced a significant percentage of lenses with imperfect edges. Lathing was required. The result was that the cost of finished product was increased by the cost of lathing and of discarding lenses which were too badly moulded to be lathed. Mr. Galley said that the overall yield using the Shepherd process rarely exceeded 50%. As Dr. Sammons accepted, it was apparent from looking at the Shepherd design of mould that there would be great difficulty in making it because of the fine dimensions of the ring arrangement and that it was likely to produce lenses with defective edges. Mr. Galley had hands-on experience of the Shepherd process and the defects which appeared to be inherent in it from his days at CV Laboratories where, from 1980 onwards he was involved in the implementation of plant according to the Shepherd design of moulds. Shepherd himself commercialised his lens moulding technology through his own company, International Lens Corporation.

The desire of the industry, which had a number of sizeable members, to crack the problem of making cheap but dimensionally accurate soft lenses by cast moulding led to a number of attempts to improve on the Shepherd design. In fact the CooperVision patent was one attempt to do just that. I was shown a number of other proposed solutions. What I found telling was that no one, except Mr. Galley, seemed to think of the piston idea. The CooperVision patent is significant in this respect. Far from going in the direction of a piston, its answer to polymer shrinkage was to lock the mould solid so that no relative movement of the male and female parts was possible. All compensation had to be achieved by flexing of part of the optical surface of one of the mould parts. This is the only piece of prior art which Dr. Sammons relied upon in the above-quoted passage from his evidence, as supporting the obviousness attack, but it actually points in the opposite direction to that taken by the Galley patent. If, as the plaintiffs argue, the use of a piston design was obvious, it is surprising that none of the major players in the industry proposed using it in the decade following the publication of Dr. Shepherd's proposal. The onus is on the plaintiffs to prove obviousness. Notwithstanding the simplicity of the Galley invention, they have not satisfied me on this issue.

Insufficiency

The plaintiffs contend that the Galley patent is insufficient in that it does not disclose how to achieve consistent finished dimensions for contact lenses manufactured in accordance with the claims. The evidence on this topic was not substantial. Mr. Cracknell said that he would have no difficulty in putting the invention into operation using the standard skills of a person in this art. I accept that evidence. This objection also fails.

Section 15: Final Comments

It will be seen that although the plaintiffs have succeeded on some of the narrow claims which survived in the breach of confidence action, on the major broad issues they have failed. Their successes, such as they are, have been in areas which are, in my view, of little technical or commercial significance. Most importantly they have failed in what was the main purpose of these proceedings, namely to close down AVCL. I have also expressed in strong terms my disapproval of the wide, and in some respects, reckless way in which their claim was framed and pursued. They have also succeeded on some of the copyright claims. But they have failed on issues such as design right, breach of fiduciary duty against Mr. Anthony Galley and solicitation. On the other hand the defendants have succeeded on most of their counterclaims, although, compared to the plaintiffs' claims, their ambit is limited.

As far as the patent infringement action is concerned, the plaintiffs succeed on the issue of licence but fail on the issue of invalidity.

Following a short, but reasonable, time to consider this judgment, I expect the parties to return to finalise the terms of any order they wish me to make. That will have to cover the usual issues of inquiries or accounts, interest and the terms of any injunctions or orders for delivery up which may be appropriate. I expect them to have exchanged and to supply me with draft orders before that hearing. They will also have to consider and make submissions on the issue of costs. In relation to the latter, I draw the parties' attention to the provisions of Ord 62 r. 7(4)(b) and the decision of the Court of Appeal in Leary v. Leary [1987] 1 All E.R. 261. I shall expect them to address me on the issue of whether in the particular circumstances of this dispute these are cases in which orders for gross sum costs are appropriate.


 


Section 15: Final Comments

It will be seen that although the plaintiffs have succeeded on some of the narrow claims which survived in the breach of confidence action, on the major broad issues they have failed. Their successes, such as they are, have been in areas which are, in my view, of little technical or commercial significance. Most importantly they have failed in what was the main purpose of these proceedings, namely to close down AVCL. I have also expressed in strong terms my disapproval of the wide, and in some respects, reckless way in which their claim was framed and pursued. They have also succeeded on some of the copyright claims. But they have failed on issues such as design right, breach of fiduciary duty against Mr. Anthony Galley and solicitation. On the other hand the defendants have succeeded on most of their counterclaims, although, compared to the plaintiffs' claims, their ambit is limited.

As far as the patent infringement action is concerned, the plaintiffs succeed on the issue of licence but fail on the issue of invalidity.

Following a short, but reasonable, time to consider this judgment, I expect the parties to return to finalise the terms of any order they wish me to make. That will have to cover the usual issues of inquiries or accounts, interest and the terms of any injunctions or orders for delivery up which may be appropriate. I expect them to have exchanged and to supply me with draft orders before that hearing. They will also have to consider and make submissions on the issue of costs. In relation to the latter, I draw the parties' attention to the provisions of Ord 62 r. 7(4)(b) and the decision of the Court of Appeal in Leary v. Leary [1987] 1 All E.R. 261. I shall expect them to address me on the issue of whether in the particular circumstances of this dispute these are cases in which orders for gross sum costs are appropriate.

Note 1   See for example the International Contact Lens Year Book, 1994.     [Back]

Note 2   Transcript 26/6/96 p. 37 - 9: Mr. Fruth.    [Back]

Note 3   Bundle D1 page 285.    [Back]

Note 4   Transcript 24/6/96 page 25.    [Back]

Note 5   See for example Transcript 23/7/96 p. 5    [Back]

Note 6   Plaintiffs’ Closing Submissions, p. 15 para. 20.    [Back]

Note 7   Plaintiffs’ Closing Submissions, p. 283 para. 2.    [Back]

Note 8   See e.g. Bundle D13 pages 276 and 358.    [Back]

Note 9   Transcript 27/06/96 page 9.    [Back]

Note 10   Mr. Fruth Supplementary Statement para 48(1)(c).    [Back]

Note 11   Bundle D14 page 45.    [Back]

Note 12   Bundle D15 page 131.    [Back]

Note 13   Bundle D15 page 173.    [Back]

Note 14   Transcript 12/7/96 page 4     [Back]

Note 15   Transcript 26/6/96 page 38.    [Back]

Note 16   Bundle D15 page 213.    [Back]

Note 17   Bundle D16 page 9.    [Back]

Note 18   Bundle D16 page 29.    [Back]

Note 19   Bundle D16 page 38.    [Back]

Note 20   Bundle D16 page 109.    [Back]

Note 21   Bundle D16 page 194.    [Back]

Note 22   Bundle D16 page 297.    [Back]

Note 23   Bundle D16 page 213.    [Back]

Note 24   Transcript 27/6/96 page 57.    [Back]

Note 25   Bundle D17 page 38.    [Back]

Note 26   Bundle D17 page 52.    [Back]

Note 27   Bundle D17 page 88.    [Back]

Note 28   Fruth Witness statement para. 125.    [Back]

Note 29   Exhibit D6.    [Back]

Note 30   Transcript 27/6/96 page 41.     [Back]

Note 31   Bundle D 17 page 89.    [Back]

Note 32   Transcript 27/6/96 page 32.    [Back]

Note 33   Bundle D17 page 59.    [Back]

Note 34   Bundle D17 page 70.    [Back]

Note 35   Bundle D17 page 62.    [Back]

Note 36   Bundle D17 page 314.    [Back]

Note 37   Bundle D17 page 309.    [Back]

Note 38   Transcript 10/7/96 page 16.    [Back]

Note 39   Bundle D18 page 215.    [Back]

Note 40   Transcript 23/7/96 page 59 (Anthony Galley), 25/7/96 page 41 (Brooker).    [Back]

Note 41   Transcript 23/7/96 page 62    [Back]

Note 42   Bundle D20 page 147/8.    [Back]

Note 43   Bundle D20 page 152.    [Back]

Note 44   Bundle D21 page 8.    [Back]

Note 45   Transcript 4/7/96 page 126.    [Back]

Note 46   Bundle D21 page 302.    [Back]

Note 47   Bundle D21 page 347.    [Back]

Note 48   Bundle D22 page 310.    [Back]

Note 49   Transcript 5/7/96 page 29.    [Back]

Note 50   Bundle D21 page 367.    [Back]

Note 51   Bundle N7 page 31.    [Back]

Note 52   Bundle D22 page 39.    [Back]

Note 53   Bundle D22 page 210.    [Back]

Note 54   Bundle D22 page 226.    [Back]

Note 55   Bundle D22 page 233.    [Back]

Note 56   Transcript 4/7/96 page 129.    [Back]

Note 57   Transcript 8/7/96 page 52.    [Back]

Note 58   Bundle D22 page 257.    [Back]

Note 59   Transcript 28/6/96 page 54.    [Back]

Note 60   Bundle D22 page 406.    [Back]

Note 61   Transcript 5/7/96 page 21.    [Back]

Note 62   Bundle D23 page 23.    [Back]

Note 63   Bundle D23 page 132.    [Back]

Note 64   Bundle D23 page 276. The same letter appears to have been sent again two days later: D23 page 318.    [Back]

Note 65   Transcript 5.7.96 page 103.    [Back]

Note 66   Bundle R2 Flag 2.    [Back]

Note 67   Transcript 25/7/96 page 81.    [Back]

Note 68   For example at Transcript 9/9/96 page 100: “MR. JUSTICE LADDIE: ... In relation to the overall nature and the design of the equipment, the broad nature of the polymers used, how they are used, and so on and so forth, the essential steps, the overall steps in making the lenses, do you accept that those in this art, ... at least those who have been through CV Labs and PLL, should be taken to appreciate that that sort of matter, the nonspecific matter, was not being treated as confidential? MR. MALES: Yes, I think that is fair.”    [Back]

Note 69   Transcript 25/7/96 page 2.    [Back]

Note 70   Transcript 25/7/96 page 86.    [Back]

Note 71   Transcript 26/7/96 (in camera) page 36.    [Back]

Note 72   See Fruth Supplemental Witness Statement paragraphs 2 - 7,     [Back]

Note 73   Transcript 25/6/96 page 86.    [Back]

Note 74   Pleadings Bundle page 49A.    [Back]

Note 75   Transcript 25/06/96 pages 92 -5.    [Back]

Note 76   Transcript 1/7/96 page 2 - 3.    [Back]

Note 77   Transcript 24/6/96 page 64 and 25/6/96 page 104 - 5.    [Back]

Note 78   Transcript 9/7/96 page 19.    [Back]

Note 79   Bundle M1 page 124.    [Back]

Note 80   Transcript 25/6/96 page 19.    [Back]

Note 81   Bundle D1 page 25 et seq.    [Back]

Note 82   Bundle D5 page 196. Transcript 25/6/96 page 20 et. seq.    [Back]

Note 83   Transcript 25/6/96 page 22.    [Back]

Note 84   Transcript 30/7/96 (Camera) page 46 and 50.    [Back]

Note 85   Bundle D1 page 21.    [Back]

Note 86   Bundle P1 pages 149 -150.    [Back]

Note 87   Transcript 2/7/96 page 62 onwards (Camera).    [Back]

Note 88   Transcript 25/7/96 page 130 - Roote.    [Back]

Note 89   Transcript 2/7/96 page 69 (Camera) - Kenney.    [Back]

Note 90   See Exhibit D17.    [Back]

Note 91   Transcript 23/7/96 page 125.    [Back]

Note 92   CDPA 1988 s. 17(3).    [Back]

Note 93   CDPA 1988 s. 17(4).    [Back]

Note 94   CDPA 1988 s. 17(5).    [Back]

Note 95   CDPA 1988 s. 17(6).    [Back]

Note 96   SI 1987/1497.    [Back]

Note 97   87/54/EEC OJ No. L24, 27/1/87.    [Back]

Note 98   Bundle D9 page 163.    [Back]

Note 99   Bundle D1 page 121. This may be an advert for lenses made by OSI-1, but that is irrelevant to the issue of whether these are features which achieve fit.    [Back]

Note 100   Bundle D5 page 98.    [Back]

Note 101   Transcript 28/6/96 page 51.    [Back]

Note 102   Transcript 28/6/96 page 54.    [Back]

Note 103   Plaintiffs’ Closing Submissions, page 237 paragraph 83.    [Back]

Note 104   Plaintiffs’ Closing Submissions, page 236 paragraph 79.    [Back]

Note 105   Bundle D1 page 89.    [Back]

Note 106   Fruth witness statement para. 106.    [Back]

Note 107   Transcript 2/7/96 page 23.    [Back]

Note 108   Transcript 2/7/96 (in Camera) page 44.    [Back]

Note 109   Transcript 26/6/96 (in Camera) page 30.     [Back]

Note 110   Statement of claim para 25.2.    [Back]

Note 111   Statement of claim para. 26.    [Back]

Note 112   Statement of claim para. 27.1 and 30.    [Back]

Note 113   Statement of claim para 27.5.    [Back]

Note 114   Statement of claim para. 26.    [Back]

Note 115   Statement of claim para. 31.1 and 34.    [Back]

Note 116   Statement of claim para. 35.1.    [Back]

Note 117   Plaintiffs’ closing submissions, page 138 paragraph 351.    [Back]

Note 118   Transcript 30/7/96 page 20.    [Back]

Note 119   Statement of claim (patent action) para 4.    [Back]

Note 120   Statement of claim (patent action) para 9.    [Back]

Note 121   Transcript 1/8/96 page 57 et. seq.    [Back]